The City of London regulator may ease mortgage rules as it faces pressure from the government to boost economic growth and home ownership in the UK.

The move to "simplify responsible lending" for buying property is part of a series of proposals put forward by the Financial Conduct Authority to demonstrate the regulator will not stand in the way of the Labor cabinet's "growth mission".

The FCA also aims to change the law in an attempt to prevent a repeat of expensive large-scale compensation schemes for consumers, such as the Payment Protection Insurance (PPI) scandal.

It comes after investors and businesses complained about the potential cost of the Motor Finance Commission scandal, which could hit banks including Lloyds and Santander with bills totaling £30bn.

Regulators may eventually review how much first-time buyers can borrow and make more loans available to customers with smaller savings, according to The Times, which first reported the changes. Currently, banks can only issue 15% of the total mortgage loan amount to borrowers with an annual salary of at least 4.5 times.

The city's regulator said it was also considering removing the £100 contactless spending limit "to give businesses and customers greater flexibility, learn from US experience and create a level playing field using digital wallets."

In a letter to Keir Starmer and Chancellor Rachel Reeves, FCA chief executive Nikhil Rathi said the regulator was "already working hard to remove unnecessary regulation". However, he promised to go further, including helping homebuyers get better mortgage opportunities.

Rathi said the FCA would start "simplifying responsible lending and advice rules" on mortgages to support home buying. He added that this would involve "a discussion on the balance between loan access and default levels".

The Bank of England has scrapped rules requiring lenders to check whether homeowners can pay their mortgages at higher interest rates in 2022. While the affordability checks were aimed at avoiding another 2007-style credit crunch, the bank said at the time that other rules, including loan caps currently based on annual income, could play a stronger role in preventing household debt from rising.

Some members of the housing industry believe looser mortgage rules are the only viable way to attract more first-time buyers to buy homes. But others say it could lead to further increases in home prices and lead to borrowers taking on more debt than they can afford.

"Making people borrow more money could cause house prices to spike again," said Jonathan Moser, chief executive of London-based property management company Mo'Living. "That could put people at risk because they It's possible to overborrow and potentially overpay. Governments and regulators should proceed with caution, but in practice there may be unintended consequences."

The FCA said it wanted to avoid future large-scale consumer compensation schemes such as the one launched over the mis-selling of PPI, which cost UK banks £50bn.

Meanwhile, businesses are worried about the looming costs of the Motor Finance Commission scandal, which City of London firms claim is dampening foreign investor interest in British company shares. The scandal, which concerns the way commissions are disclosed to consumers, could cost lenders up to £30bn.

While the FCA's primary aim is to prevent misconduct, the regulator is consulting on how to identify and resolve issues more quickly to avoid the need for large-scale compensation schemes in the future.

"We can never rule out the possibility that the company will have to pay compensation for serious misconduct," Ratti's letter said. "However, by proactively managing issues and improving coordination with the Financial Ombudsman Service, we aim to prevent further significant FCA-led consumer compensation actions. As part of this, we are considering a framework for redress that may require legislation Make reforms.”

The FCA was responding to a letter from Reeves and Starmer, who contacted 17 UK regulators on Christmas Eve asking them to make proposals to boost growth. Ministers are now summoning regulators to Downing Street for inspections to review their proposed plans and progress.

FCA will move up to No. 11 in the coming weeks.