The call comes as the Financial Conduct Authority (FCA) undertakes a review of the mortgage market, exploring how to help aspiring homeowners.

Since 2014, lenders have been required to apply a strict affordability “stress test”, assessing if a borrower could manage their mortgage payments if interest rates were to rise sharply. While these rules have been credited with keeping arrears low, UK Finance argues they have also constrained many creditworthy individuals from securing a mortgage.

Analysis from UK Finance shows that the stress test has been effective. Among borrowers whose current mortgage rate is below the level they were originally tested against, only 0.21% are in arrears. This figure rises to 1.75% for the smaller group now paying a rate above their original stress test threshold.

Modelling based on these figures suggests that for every 10,000 additional mortgages approved under a less stringent test, approximately 175 could fall into arrears. UK Finance notes this should be seen in the context of the 600,000 to 700,000 new house purchase mortgages written each year, and the 87,000 homeowner mortgages currently in arrears.

However, the body cautioned that any change that significantly boosts demand without a corresponding increase in housing supply would likely drive up house prices, negatively impacting overall affordability.

The debate is timely, with the FCA’s “public conversation” on the future of the mortgage market set to close for feedback on 19 September. The regulator is examining how it can help first-time buyers, long-term renters, and older homeowners who may be income-constrained.

Eric Leenders, managing director of personal finance at UK Finance, said the FCA had started a “welcome and important debate”.

“Our analysis shows that a carefully measured easing of stress-test rules can responsibly allow more people – especially first-time buyers – into the mortgage market without leading to a significant increase in arrears levels,” he stated.

The discussion follows a mixed period for the property market. After a dip in lending activity in early Q2 2025 due to Stamp Duty changes, the market rebounded in June. More recently, Bank of England data showed mortgage approvals for house purchases rose to a six-month high in July, despite a slight 0.1% dip in UK house prices reported for August.