UK Finance has called for banks to be allowed to issue more loans to buyers borrowing more than 4.5 times their salary. Currently these deals are capped at 15pc of their loan books.
The Financial Conduct Authority’s Consumer Duty rules, which were introduced last summer, mean lenders must focus on good outcomes for customers and could make banks even more risk averse, Mr Postings warned.
The new rules have sparked fears amongst senior bankers that they could be on the hook if house prices drop and borrowers fall into negative equity, meaning their home is worth less than they borrowed to pay for it.
Mr Postings said: “When faced with the test of a good outcome for consumers, will this push the risk appetite lower still as I have long feared?
“There is a real and large economic consequence emanating from this debate and the role of the regulators and the ombudsman will be crucial in the trajectory we see from here on.”
The affordability squeeze means first-time buyers are increasingly taking out loans over longer terms to reduce their monthly payments. In November, the average first-time buyer took out a mortgage over a 31-year term, up from 26 years in the same month in 2005.
