21st July 2025

Just little bits of history repeating itself?

A key factor responsible for the 2008 financial crisis in the United Kingdom was excessive risk-taking by banks. In the years leading up to the crisis, UK banks were giving out risky mortgage loans (100% plus in some cases) as well as investing in high-risk financial products without very little caution at all.

During the crash this created, the UK government intervened with billions to support the UK banking sector, four major UK banks in particular. At its peak, the cash cost of these interventions was £137 billion, paid to those banks in the form of loans and new capital.

In addition to Government intervention, approximately £20.4 billion in compensation was paid by FSCS to customers of the five banks including £15.65 billion for Bradford and Bingley. The FSCS is funded by the regulated firms.

Some individuals and institutions in the UK did, amazingly, face the consequences for their actions relating to the 2008 financial crisis. Barclays was fined some £40m by the FCA in relation to Qatari capital raising activities to avoid a government bailout.

While several major financial institutions paid billions in fines and settlements, very few senior executives were criminally prosecuted. The contrast between the scale of financial misconduct and the number of criminal convictions sparked considerable public outrage at the time as only a handful of lower- or mid-level individuals were ever prosecuted

So now after this little history lesson, it seems that in the passing of 17 years nothing much has been learned or has it just conveniently been politically forgotten?

The latest data from the You Gov Consumer Duty Index reveals that despite the proportion of potentially vulnerable customers dropping from 63% in April 2024 to 60% in April 2025, more customers than not remain potentially vulnerable.

According to the Financial Conduct Authority (FCA), a vulnerable customer is an individual who is especially at risk of harm if providers of financial services do not provide the necessary level of support. Latest research reinforces the importance of safeguarding potentially vulnerable customers by ensuring financial service providers meet their regulatory obligations and maintain consumer trust.

At the same time, the Financial Conduct Authority (FCA) is reviewing mortgage regulations introduced post that 2008 crisis. The goal, supposedly, is to simplify lending rules to potentially boost homeownership and economic growth but clearly ignoring the ‘Vulnerable’. 

You could not make this up, but the FCA has on your behalf.

Key Proposed Changes are:

1. An affordability Test Review

• Currently, borrowers must prove they can afford future interest rate hikes.
• The FCA may allow less stringent stress testing, enabling more people to qualify for loans.

2. Loan-to-Income (LTI) Ratio

• Current rules restrict how many loans banks can issue above 4.5x a borrower’s income.
• The Chancellor along with the ‘assistance’ of the FCA is looking to ease this limit, letting more borrowers access higher-value mortgages.

3. Stress Testing Adjustments

• Lenders like Santander and HSBC have already reduced their stress test rates.
• This allows for larger borrowing limits.

Impact on First-Time Buyers

• Could significantly increase borrowing capacity, making homeownership more accessible.
• Particularly helpful in high-cost areas where current rules limit loan sizes.

Potential Benefits

• Greater homeownership, especially among younger and lower-income groups.
• Stimulus to the housing market and broader economic activity.

Potential Risks

• Higher debt levels may increase risk of mortgage defaults if interest rates rise.
• Could lead to house price inflation, worsening affordability in the long term.
• May reduce financial resilience in the event of economic downturns.

Government & Industry Position

• The UK government is pushing for these changes to support growth.
• The FCA has signalled openness but is balancing this with financial stability concerns.
• Some major lenders are already moving ahead with changes.

What’s Next?

• The FCA will continue reviewing rules, particularly the LTI flow limit.
• Further consultations or policy changes may follow, depending on economic conditions and lender behaviour.
• And then, 20 years later, a financial crash in 2028, just round the time of the next election?

The UK move toward loosening mortgage rules, which may help some buyers, carries real financial risks but whether these changes strike the right balance between accessibility and stability will depend on careful regulation and market response.

The Elephant in the room?

The Chancellor needs more money to fill the hole the Labour government keeps digging and that will come from the Stamp Duty and VAT generated by moving house as well as from the predicted Autumnal tax increases meaning that those ‘working people’ will have even less disposable money to spend on getting on the housing ladder and service the debt created and as a result for those ‘vulnerable’ who did get on it, default and falling off.

The ‘Propellor Heads and Shirley Bassey’ 1997 hit song sums this all up very well: “I've seen it before, And I'll see it again, All just little bits of history repeating itself”?

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