The Bank of England (BoE) has warned that easing mortgage lending restrictions could lead to higher home repossessions and may not effectively support first-time buyers.

Governor Andrew Bailey told MPs at yesterday’s Treasury committee that while he welcomes an open debate on the issue, policymakers must consider the benefits these rules have provided in safeguarding financial stability.

Bailey (pictured) highlighted that existing mortgage restrictions have helped prevent excessive risk-taking, particularly during economic downturns.

CYCLICAL DOWNTURNS

He said: “They have helped to avoid the creation of a large tail of mortgages, which, when we have the inevitable cyclical downturns or shocks, turn out to be a real problem.”

The discussion follows recent proposals by the Financial Conduct Authority (FCA) to further relax mortgage lending regulations.

Just last week Chancellor Rachel Reeves expressed support for measures that enhance homeownership and help families get onto the housing ladder.

The government has also urged regulators, including the BoE and the FCA to review financial rules to help stimulate economic growth.

FINANCIAL STABILITY

But Bailey was quick to point out that financial stability still remains the BoE’s primary objective and cautioned that there is no trade-off between stability and economic growth.

The BoE’s Financial Policy Committee (FPC) currently limits banks from issuing more than 15% of mortgages exceeding 4.5 times a household’s income. The FCA, meanwhile, enforces affordability tests to ensure borrowers can manage repayments if interest rates rise.

The Bank of England will reveal its latest rate decision on Thursday next week with a 92% likelihood of a 0.25 percentage point cut according to interest-rate Swaps data.