Today, Chancellor Rachel Reeves is set to announce a significant relaxation of mortgage lending rules, a move heralded as part of the “Leeds Reforms” aimed at boosting homeownership and economic growth. This policy, which includes increasing access to high loan-to-income (LTI) mortgages—loans exceeding 4.5 times a borrower’s annual salary—and a government-backed guarantee for 95% mortgages, is being sold as a lifeline for first-time buyers. However, this approach is not only reckless but dangerously reminiscent of past financial missteps that fuelled the boom-and-bust cycles of the UK property market. Far from solving the housing crisis, Reeves’ reforms risk inflating an already strained market, endangering borrowers and the wider economy
A Dangerous Echo of the Past
The UK housing market has a long history of volatility driven by lax lending practices. The 2007-08 global financial crisis, triggered in part by subprime lending in the US, was exacerbated in the UK by overly generous mortgage policies that encouraged borrowers to take on unsustainable debt. High LTI mortgages, like those Reeves is championing, were a hallmark of that era. Lenders, emboldened by loose regulations, extended credit to borrowers who could barely afford repayments, inflating house prices to unsustainable levels. When the bubble burst, homeowners faced repossession, banks teetered on collapse, and the economy plunged into recession.
Reeves’ plan to allow banks to increase high LTI mortgages—potentially pushing the proportion of such loans from 9.7% to 11% by the end of 2025—ignores these lessons. The Bank of England’s own data shows that high LTI loans are riskier, as they stretch borrowers’ finances to the breaking point, especially in an environment of volatile interest rates. The 2008 crisis demonstrated that encouraging reckless lending doesn’t just harm individual borrowers; it creates systemic risks that can cripple the financial system. By loosening these caps, Reeves is betting on short-term economic stimulus at the cost of long-term stability, a gamble that history suggests will end badly.
Inflating the Bubble, Not Solving the Crisis
The UK’s housing crisis is fundamentally a supply problem—too few homes for a growing population. Yet Reeves’ reforms focus on demand, pumping more credit into an already overheated market. By enabling buyers to borrow more, the policy will likely drive house prices higher, as increased purchasing power chases a limited number of properties. The Guardian reported in April 2025 that similar loosening of affordability tests by lenders like Santander led to borrowers accessing £10,000 to £35,000 more, but critics warned this could “push up house prices even faster.” Jonathan Moser, CEO of Mo’Living, cautioned that such measures risk “skyrocketing” prices, making homeownership even less attainable for those Reeves claims to help.
The government’s “Freedom to Buy” scheme, which guarantees 95% mortgages, further exacerbates this issue. By covering banks’ losses on these high-risk loans, the Treasury is incentivising lenders to prioritise volume over prudence, echoing the reckless lending practices that preceded the 2008 crash. This artificial boost to demand does nothing to address the root cause of unaffordability—insufficient housing supply. Instead, it risks creating a new generation of homeowners trapped in negative equity if prices collapse, as they did in the early 1990s and post-2008.
The Human Cost of Risky Lending
Reeves’ reforms are being sold as a boon for first-time buyers, with the Bank of England estimating that 36,000 more high LTI mortgages could be issued annually. But this ignores the harsh reality for borrowers. High LTI loans mean higher monthly repayments, leaving households vulnerable to even small interest rate hikes. With the Bank of England’s base rate at 4.25% as of May 2025, and inflation rising to 3.5%, the risk of future rate increases is real. Borrowers stretched to their limits could face default and repossession if economic conditions worsen—a scenario made more likely by global uncertainties like US tariffs and geopolitical tensions.
Posts on X reflect growing public concern, with users like @nickdebois warning that “with increasingly volatile interest rates and unemployment levels, this is risky … and we have been here before.” Another user, @boblister_poole, highlighted fears that Reeves’ push could “end in more people losing their homes.” These sentiments underscore a critical truth: loosening lending rules may offer short-term relief but exposes borrowers to long-term peril.
Economic Folly in a Fragile Global Context
The timing of Reeves’ announcement could not be worse. The UK economy faces headwinds from global trade disruptions, particularly US tariffs under President Trump, which could weaken demand and increase costs for UK businesses. The Bank of England has already noted increased financial instability due to these global shifts, with a weaker US dollar and higher borrowing costs adding pressure. Encouraging households to take on more debt in this environment is akin to pouring fuel on a smouldering fire. If global demand falters or supply costs rise, UK borrowers could face a perfect storm of higher repayments and economic stagnation.
Moreover, the Financial Conduct Authority’s (FCA) earlier moves to relax affordability stress tests in March 2025 have already set the stage for riskier lending. Reeves’ latest reforms double down on this approach, prioritising growth over stability. The FCA’s own data shows that 68% of first-time buyers are taking out mortgages with terms of 30 years or longer, a sign of how stretched finances already are. Further loosening rules risks pushing borrowers into even longer terms or interest-only mortgages, which the FCA is now considering, trapping them in debt for decades.
A Better Path Forward
If Reeves truly wants to tackle the housing crisis, she must shift focus from demand-side gimmicks to supply-side solutions. Increasing housing construction—through streamlined planning permissions, incentives for developers, and investment in social housing—would address the root cause of unaffordability. The Bank of England itself noted that 80% of potential first-time buyers lack the savings for a 5% deposit, highlighting the need for policies that reduce upfront costs rather than inflate borrowing.
Additionally, maintaining prudent lending standards is essential to protect consumers and the economy. The post-2008 regulations, while imperfect, were designed to prevent another crisis. Scrapping them risks repeating past mistakes. Instead, Reeves could explore targeted support for first-time buyers, such as shared ownership schemes or deposit assistance, without destabilising the financial system.
Conclusion
Rachel Reeves’ decision to loosen mortgage rules is a reckless gamble that prioritises short-term political wins over long-term economic stability. By flooding the market with high-risk loans, she risks inflating a property bubble that could burst with devastating consequences for homeowners and the economy. History shows that lax lending fuels boom-and-bust cycles, and today’s fragile global context only heightens the danger. Rather than repeating the mistakes of the past, Reeves should focus on building more homes and supporting buyers without endangering their financial future. The UK housing market deserves better than a policy that bets the house on borrowed time.
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