Potential changes to ease UK mortgage lending rules could be a positive for UK housebuilders but would come with risks and question marks.
Media reports at the end of last week suggested the UK government is in discussion with the regulators to explore potential measures to ease mortgage lending rules and thereby boost homebuyer affordability and help accelerate the UK's economic growth.
Prime Minister Keir Starmer and Chancellor Rachel Reeves had written to UK's regulators across all industries to propose five reforms to support growth in the coming years.
Analysts at Citi noted that mortgage lenders are currently restricted to maintaining a loan-to-income limit of 4.5 times and that only 15% of the mortgage book in volumes is permitted to exceed this limit.
Among the proposals under review, the loan-to-income limit could be increased, thereby offering lenders the flexibility to offer higher loans at higher income multiples and loan-to-values and enable homebuyers to borrow more relative to earnings.
Reports also suggest that banks are lobbying the Bank of England to reduce the amount of capital required to be kept in reserve for 90% LTV mortgages.
"One of the key findings of an FCA report post the implementation of the current LTI limits (in 2014) was that it led to increased use of high LTI mortgages to higher income borrowers," Citi said, suggesting the measure helps home movers and joint income applications rather than helping first-time buyers.
UBS analysts said the potential changes reported "appear to be focused on allowing lenders to issue more mortgages to buyers with smaller deposits".
If changes allow greater support to first-time buyers, the Swiss bank's real estate team think changing regulation "could be a positive for UK housebuilders" as it would be likely to drive greater customer buyer power.
It "could be supportive for house prices and might to some extent help offset the void of no fiscal stimulus currently in place," following the end of the previous government's Help to Buy scheme.
However, news reports suggest conversations between the UK Government and regulators are in the early stages and any changes could be some way away.
"We also think there may be question marks on whether any mortgage de-regulation that increases household leverage could increase risk in the UK housing market," the UBS analysts said, though they highlighted that the FCA has reportedly told the government that easing regulation could result in failures.