As the Labour government introduces sweeping changes to mortgage regulations, financial experts are sounding alarms about potential risks to both borrowers and the housing market. The proposed reforms could dramatically increase borrowing capacities—but at what cost?
The Controversial New Rules Explained
Under Labour’s planned overhaul of mortgage affordability tests:
Stricter income multiples may be scrapped, potentially allowing larger loans relative to earnings
Alternative credit assessments could consider factors beyond traditional income verification
Longer mortgage terms (up to 40 years) may become more widely available
According to Bank of England data, these changes could increase maximum borrowing amounts by 20-30% for average earners.
Why Experts Are Worried
1. Echoes of the 2008 Crisis
“These reforms contain dangerous echoes of the pre-financial crisis environment,” warns Sarah Coles, Head of Personal Finance at Hargreaves Lansdown. “While helping some get on the ladder, they risk creating a new generation of overstretched borrowers.”
2. Inflationary Pressure on House Prices
Analysis by Rightmove suggests every 10% increase in borrowing capacity typically translates to 5-7% house price growth. In hot markets like London and Manchester, this could accelerate affordability crises.
3. Debt Sustainability Concerns
The Institute for Fiscal Studies notes that 40-year mortgages may reduce monthly payments but could:
Increase total interest paid by 50-70%
Leave borrowers vulnerable to rate rises
Create retirement-age debt burdens
Potential Ripple Effects
Scenario Short-Term Impact Long-Term Risk
Higher borrowing limits More first-time buyers Price bubbles forming
Relaxed affordability checks Increased market activity Higher default rates
Extended mortgage terms Lower monthly payments Intergenerational debt
Government’s Defence
Housing Minister Matthew Pennycook argues:
“Current rules unnecessarily exclude creditworthy borrowers. Our reforms will maintain financial stability while helping families trapped by outdated standards.”
What Borrowers Should Consider
Stress Test Your Budget
Use MoneySavingExpert’s Mortgage Calculator to model rate rises
Watch for Early Warning Signs
The Financial Conduct Authority will monitor lender risk-taking
Consider Alternatives
Shared ownership and family-assisted schemes may offer safer routes
As noted in The Economist’s recent analysis, the policy walks a tightrope between addressing housing access and risking financial instability. With consultations ongoing, the final shape of these reforms—and their market impact—remains uncertain.
