Reeves warned thousands of people could lose their homes if mortgage rules were relaxed.

The support scheme proposed by the FCA would first relax mortgage rules introduced in the wake of the 2008 financial crash - a scheme first introduced by Shutterstock/Tolga Akmen.

Rachel Reeves has been warned that thousands of families could lose their homes every year if mortgage rules are relaxed to help first-time buyers.

Financial Conduct Authority (FCA) chief executive Nikhil Rathi said a push to ease restrictions on mortgage lending could double the number of home repossessions.

Lacy told a select committee hearing on Wednesday: "If these numbers increased from 1,000 to 2,000 ... that would be an acceptable outcome in Parliament, or would you say to us: 'Why on Earth, you let it go up? To 100pc?'"

This comes after mortgage rules were first introduced following the 2008 financial crash, following a scheme backed by policies proposed by the FCA.

The FCA currently limits banks' ability to lend mortgages worth more than 4.5 times a borrower's income, while also requiring lenders to carry out affordability tests to ensure customers can cope with rising interest rates.

The city regulator set out new ideas on ways to increase UK economic growth in a letter to Sir Keir Starmer after the Prime Minister asked the regulator to put forward new ideas on ways to increase economic growth in the UK. Keir Starmer's letter sets out plans to simplify the rules.

Ms Reeves said earlier this week that easing mortgage rules could help reverse the UK's decline in home ownership while also boosting economic growth.

However, Mr Rathi said this meant some borrowers were riskier and could lead to more collections.

He also noted it would run counter to the Mortgage Charter, which banks signed under the previous government to help borrowers while limiting favorites.

Mr Rathi told MPs on Wednesday: "Last year when the mortgage charter was in place, almost every major party said it was going down and we did. This is inconsistent with the easing of lending standards.

"The upside on the other side is that you're potentially allowing a lot of first-time buyers into the market who are now paying very high rents. So there's a positive benefit to the economy that we should express

"But ultimately, we do need some political guidance, and this is some political discussion."

Nikhil Rathi warns PM that easing lending rules will increase repossessions - Reuters/Florence lo/File Photo

Lenders repossessed 990 homes in the third quarter of 2024, 39% more than during the same period in 2023.

The prime minister is now under pressure to increase growth after worries about uniting the economy sent public borrowing costs soaring and put her at risk of breaching fiscal rules.

The support for looser mortgage rules is one of many growth-enhancing moves the government has made in recent days. The Prime Minister also said she would support plans to expand Heathrow Airport, while the Competition and Markets Authority chairman has been forced and replaced by Amazon UK's former boss.

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