Open Editor's Digest for free
Rula Khalaf, editor of the Financial Times, picks her favorite stories in this weekly newsletter.
Chancellor Rachel Reeves has backed plans by the UK Financial Conduct Authority to study ways of allowing more mortgage risk by banks to help more people own their homes.
The Chancellor told the Financial Times that she welcomed the Financial Conduct Authority's proposals to lift restrictions on mortgages, and that she was “completely open to considering ideas that could boost home ownership and help working families get on the housing ladder.”
Reeves heads to Davos this week to promote the UK as an investment destination at the World Economic Forum as the Labor government tries to boost growth after the economy flatlined in the second half of last year.
With her self-imposed fiscal rules under pressure and business sentiment suffering after her decision in the October Budget to increase employers' National Insurance contributions, the Chancellor has been under intense political pressure since the start of the year.
The Treasury has been at the heart of the government's efforts to push regulators to come up with measures to boost growth. Reeves met with several UK rule makers last week to hear their ideas.
“My biggest concern is that we are under-regulated on risk while ignoring growth,” Reeves said. “We need to ensure that regulators also take into account the impact of their policies on growth – that is what we are determined to do as a reform government.”
The Financial Supervision Authority said Her message It published a letter to the Prime Minister on Friday saying it would “begin to simplify the rules for responsible lending and mortgage advice, support home ownership and open a debate on the balance between access to lending and default levels”.
Mortgage lending in the UK is controlled by a combination of rules from the Financial Conduct Authority (FCA) and the Bank of England, most of which were introduced after the 2008 financial crisis when many banks had to be bailed out by the state.
The rules limit how much banks can lend as a multiple of a person's income or property value and require affordability tests to check whether borrowers can handle rising interest rates in the future.
“Home ownership has declined under the last government and we are determined to change that,” Reeves said, adding that the Treasury would “consider the FCA’s ideas in this area.”
The proportion of households owning their own homes fell from 64.3 per cent in 2011 to 62.5 per cent in 2021, according to the Office for National Statistics.
Richard Donnell, chief executive at property portal Zoopla, said the “big hurdle” preventing more people from taking out a mortgage was the FCA's requirement to confirm affordability testing, which means banks have to test… Whether borrowers are able to handle higher borrowing costs.
Reeves has come under fire in recent weeks after leaving herself a slim margin of error of £9.9bn against her budget base to fund day-to-day government spending from tax revenues by 2029/30. This margin is at risk of being wiped out by any renewed rise in bond yields.
She said the Budget struck the right balance when it came to its base and that the March forecast from the Office for Budget Responsibility would depend on a range of factors, not just bond yields.
Reeves added that while global markets faced “headwinds”, financial rules remained “non-negotiable”. She added that this means that she will not make any changes to the rules published at the time of preparing the budget.
Asked if she could rule out tax increases in March to ensure they meet those rules, Reeves reiterated: “We don't have a budget in March. . . . My commitment to one fiscal event per year still stands.”
Reeves admitted the Budget, which has been heavily criticized by business leaders for raising national employer income and wage costs, involved making “difficult decisions”. But she insisted they were the right people to get the economy back on firm footing.
She said she had not yet heard a serious alternative to these measures.
“Just imagine the alternative – if I had not taken those difficult decisions to put the public finances on a firm footing, what that would have done to Britain's trust market,” she said. “I had to deal with my inheritance. That meant making difficult decisions but the right decisions to get our economy back on firm footing.
Speaking before Donald Trump's inauguration as US president, Reeves said the fact that he was a “deal-minded person” made her hopeful there was “room” to negotiate a trade deal with the new administration.
While talks have not yet begun, the Chancellor said any trade deal with Washington “must be right for the UK”, adding that Labor would not abandon its current position banning imports of US chlorine-washed chicken or hormone-fed beef.
