Thousands more families could lose their homes every year if mortgage rules are relaxed to help first-time buyers, Rachel Reeves has been warned.
Nikhil Rathi, chief executive of the Financial Conduct Authority (FCA), said a push to ease restrictions on mortgage lending could see the number of home repossessions double.
In a select committee hearing on Wednesday, Mr Rathi said: “If the numbers went up from 1,000 to 2,000 … would that be an acceptable outcome here in Parliament, or would you say to us: ‘Why on earth have you let it go up by 100pc?’”
It comes after the Chancellor backed plans put forward by the FCA to loosen mortgage rules first introduced in the aftermath of the 2008 financial crash.
The FCA currently restricts banks ability to lend mortgages that are valued at more than 4.5 times a borrower’s income, while also requiring lenders to carry out affordability tests to ensure customers can deal with rising interest rates.
The City watchdog put forward plans to ease these rules in a letter to Sir Keir Starmer last Thursday, after the Prime Minister asked regulators to offer new ideas on ways to increase Britain’s economic growth.
Ms Reeves said earlier this week that easing mortgage rules could help turn around falling levels of home ownership in the UK while also boosting economic growth.
However, Mr Rathi signalled that this would mean higher risks for some borrowers and could lead to more repossessions.
He also pointed out that it would run counter to the mortgage charter, which banks signed up to under the last government and is meant to help borrowers while limiting repossessions.
Mr Rathi told MPs on Wednesday: “When the mortgage charter came in last year, pretty much every major party said keep repossessions down, and we did. That is not consistent with relaxing the lending standards.
“The benefit on the other side is you could potentially allow a lot of first-time buyers into the market who are paying very high rents right now. So there are positive benefits for the economy which we should articulate
“But ultimately that risk calculus is something we do need a bit of political guidance on, a bit of a political discussion on.”
Lenders repossessed 990 homes in the third quarter of 2024, 39pc more than in the same period of 2023.
The Chancellor is currently facing mounting pressure to boost growth after concerns about the flatlining economy sent public borrowing costs surging and put her at risk of breaching her fiscal rules.
Support for looser mortgage rules are one of a number of pro-growth moves made by the Government in recent days. The Chancellor has also signalled she will support plans for an expansion of Heathrow Airport, while the chairman of the Competition and Markets Authority has been forced out and replaced by the former boss of Amazon UK.