The chancellor’s plans to relax mortgage lending rules must be approached with caution, warns David Alexander, the chief executive officer of DJ Alexander Scotland.
The agency, part of the Lomond Group, has welcomed efforts to support first-time buyers – but says reforms must be balanced with increased housebuilding, greater backing for the private rented sector (PRS), and safeguards against fuelling unsustainable market growth.
The warning follows the unveiling of Rachel Reeves’ “Leeds Reforms”, which – while centred on revitalising the financial sector – also include a raft of housing-related measures aimed at unlocking the market.
Proposals include easing loan-to-income (LTI) caps, simplifying mortgage affordability rules for remortgaging, and making the Mortgage Guarantee Scheme a permanent fixture. The latter is designed to ensure high loan-to-value (LTV) products remain available during times of economic uncertainty.
While the intention is to boost mobility and affordability, DJ Alexander says the risk of inadvertently overheating the property market cannot be ignored—particularly without a clear and urgent plan to expand housing supply.
Alexander commented: “There is little doubt that a relaxation of the mortgage market will be welcomed by buyers and lenders and will be seen as a boost at a time when house price growth is slowing. However, this needs to be implemented with caution as there is the potential to create a rapid house price boom which will invariably be followed by a bust.”
“The risk is that this is potentially repeating the fairly lax lending that occurred in the run-up to the 2008 housing crash where excessive income multiples were approved, financial checks were less robust, and individuals were encouraged to borrow too much resulting in a price crash which, for many parts of the country, took years to recover from.”
He continued: “Without increased housing supply the danger will be that while more people will be able to access greater funding this will simply be used to pay inflated prices for a limited number of properties. This will result in prices rising rapidly, and a cycle of higher borrowing, greater payments, but no real resolution of the underlying causes of the current affordability issues. The worst outcome for these policies is that it could actually make affordability worse rather than better.”
“The permanent mortgage guarantee scheme does have the potential to be positive. By supporting high loan-to-value lending during economic downturns, this may provide greater stability at a time when growth is absent. But success will depend on how this is implemented and whether it is appropriately monitored.”
Alexander added: “The recent Property Market Report 2024-25 from Registers of Scotland (RoS) reveals just how damaging the 2007-08 crash was and how long the Scottish housing sector took to recover. The latest RoS report states that ‘the total market value of residential sales was £22.7bn in 2024-25, and despite sustained increases in prices over the past 20 years, the market value has not eclipsed the peak of £23.2 billion in 2007-08.’
“In fact, average house prices in Scotland peaked in May 2008 at £140,152, fell £23,719 in just nine months, and didn’t return to over £140,000 until July 2017. It took over nine years for the housing market to recover from the boom so we must approach any relaxation of lending with caution. It can be very easy to turn the lending taps on but much harder to turn them off.”
