Rachel Reeves is looking at making it easier for home buyers to borrow in a move designed to boost property sales and the economy.
Banks and building societies would be allowed to offer bigger mortgages to people with a small deposit, including more deals allowing borrowing of six times income.
In theory, it might allow people who are currently paying a fortune in rent to get on to the property ladder.
A thriving property market and sales offer benefits to the wider economy because of associated spending on furniture and home improvements.
However, some industry experts warn that increasing the number of buyers will increase competition for properties, leading to the sort of artificial price boom that was a key cause of the financial crash of 2008.
It would also land buyers with huge loans that they may struggle to afford if they suffer a shock to their finances.
Similar moves by the last Conservative government to make it easier for first time buyers to get on the property ladder fueled property prices and the profits of house builders.
and property market expert, Merryn Somerset Webb, rejected the idea of using property price rises as a vehicle for boosting the economy, saying: “For the last time Britain: Economic growth is not a result of rising house prices.”
is reporting that financial regulators are understood to be looking at allowing banks and other lenders greater flexibility to allow “responsible risk-taking” from borrowers.
They are also examining whether the £100 limit on contactless payments could be scrapped to allow payment companies to set their own limits, making it easier for consumers to make big transactions.
The moves come in response to demands from Rachel Reeves for UK regulators to embrace a “pro-growth agenda” after a meeting in the Treasury on Thursday.
The Chancellor told representatives of agencies including the Competition and Markets Authority and the Environment Agency that they needed to deliver a “mindset shift on regulation” to boost growth “instead of excessively focusing on risk”.
Increasing the number of buyers could increase competition for properties (Image: Getty)
Reeves and Sir have pledged to make the UK the fastest growing economy in the G7. However, these pledges have been undermined by increasing in the costs of borrowing, which is feeding through to costs.
Financial experts argue the rules about lending are too restrictive and make it more difficult for first-time buyers to get on the housing ladder, even if they can afford their monthly payments.
At the moment lenders are only allowed to lend 15 per cent of their total “loan book” to people whose property is worth 4.5 times their annual salary. This system could be relaxed to allow a higher percentage of loans at up to six times salary.
There are also strict affordability rules that lenders have to follow to make sure borrowers can afford unexpected rises in that could be scaled back. Regulators are also likely to consider altering affordability tests to include evidence of previous rental payments rather than simply income.
Banking industry leaders and brokers support a relaxation of lending rules.
Charles Roe, director of mortgages at UK Finance, said the number of homeowners in arrears on their mortgages was at “historically low levels” and a review of the lending rules would be welcome.
He said: “Reviewing the lending rules would help with affordability issues, not just for first time buyers but also those looking to move further up the housing ladder. Banks will always lend responsibly but the current rules are restricting the number of people who can get a and so could be relaxed.”
Andrew Montlake, chief executive of the broker Coreco, said the reforms represented a “sensible” shift in risk appetite that could open up the market to thousands more potential buyers.
He added: “The market has come through the storm of and rapidly rising without a big rise in repossessions . Now is the right time to make some sensible changes to risk appetite and open up the market to more buyers.”