Trade body UK Finance has welcomed discussions by the mortgage regulator on loosening stress tests – but warned that any changes will result in more loans falling into arrears.
UK Finance noted that current lending rules have kept arrears low, but they have done so by restricting access to credit.
The trade body said: “The FCA [Financial Conduct Authority] has recently initiated a welcome discussion on whether—and how—these rules might be revised to support higher levels of homeownership.
“Such changes would involve accepting a greater risk of future arrears.”
UK Finance estimated that for each additional 10,000 mortgages issued at a less stringent stress test rate, there will be around 175 additional loans falling into arrears.
To put this into perspective, each year, between 600,000 and 700,000 new house purchase mortgages are written, and there are currently around 87,000 homeowner mortgages in arrears.
However, any loosening that significantly boosts demand without a corresponding increase in housing supply would likely drive-up house prices.
In March it emerged that the FCA launched a call for evidence on different methods of stress testing.