The Bank of England is examining potential adjustments to restrictions on higher-risk mortgage loans, a policy shift that could bolster the struggling UK residential property market. The Financial Policy Committee within the central bank is evaluating whether to raise a vital lending threshold to five times a borrower’s household income, an increase from the current limit of 4.5 times.
Since 2014, regulatory rules have barred most banks from allocating more than 15% of their total mortgage lending to applicants exceeding that loan-to-income multiple. Responding to inquiries regarding the review, the central bank stated that it maintains regular oversight of its housing tools while ensuring alignment with the Financial Policy Committee’s primary and secondary objectives.
Industry estimates suggest that implementing a higher threshold could expand credit availability significantly. According to the banking sector lobby group UK Finance, lifting the cap to five times household income might unlock additional lending capacity equal to roughly 7% of new residential mortgages.
This regulatory consideration comes as the UK residential property sector faces mounting headwinds from elevated borrowing expenses that continue to constrain prospective homebuyers. Recent data from a major mortgage lender indicated that UK house prices stagnated in October, following a 0.3% decline the previous month.
The policy review also follows official correspondence from UK Chancellor John Healey, who wrote to the central bank this week. Healey urged the Financial Policy Committee to focus on enhancing accessibility to homeownership while safeguarding financial stability, and to evaluate how adjusting the loan-to-income limit might further that goal.
The chancellor’s outreach followed his announcement in Wednesday’s budget doubling the UK bank tax surcharge to 6%. That fiscal measure is projected to generate approximately £1.5 billion, equivalent to about $2 billion, to finance cost-of-living relief programs for households grappling with financial strain.
