With the Autumn Budget approaching, rumoured announcements could have significant implications for the UK's lending and credit markets according to Broadstone, a leading banking and credit advisory consultancy.
It comes amid persistent speculation around potential increases to bank taxes, further detail on the ‘Your First Home’ scheme for first-time buyers, and confirmed changes to mortgage lending rules which take effect on the same day – Wednesday 28 October.
The Chancellor is reportedly considering increasing the bank corporation tax surcharge from its current rate of 3% to 8%. The measure could raise more than £2bn annually for the Treasury, but has prompted questions about the potential implications for lending activity and the availability of credit.
Any increase could lead banks to reassess their lending strategies and credit risk appetite, potentially affecting access to mortgages, personal loans and business finance. It could also encourage greater competition from non-bank and alternative lenders, creating additional considerations around regulatory oversight and the monitoring of credit risks across the wider market.
Meanwhile, the Government is expected to confirm further details of its ‘Your First Home’ scheme, designed to help first-time buyers purchase new-build homes with deposits as low as 2.5%, supported by a 20% government-backed equity loan.
The scheme could stimulate mortgage demand and improve access to homeownership for borrowers struggling to build sufficient deposits. However, it raises questions about affordability, the assessment of borrowers' longer-term repayment capacity and how lenders account for equity loans in their credit risk models. The potential for higher repayment commitments when the interest-free period ends will also need to be carefully considered.
Separately, significant changes to mortgage lending rules are set to come into force on 28 October, following confirmation from the PRA and FCA. The reforms remove the existing restriction preventing individual lenders from issuing more than 15% of their new residential mortgages at loan-to-income ratios of 4.5 times income or above, while retaining an aggregate market-wide limit of 15%.
The changes come as the proportion of higher loan-to-income mortgages has already risen sharply. The latest PRA data shows that mortgages worth at least 4.5 times borrowers' incomes accounted for 14.1% of new lending within the scope of the rules in Q2 2026, up from 9.7% in Q3 2025 – an increase of 4.4 percentage points in just nine months [1].
The changes will give lenders greater flexibility to determine their own higher loan-to-income lending strategies, potentially expanding access to mortgages for first-time buyers and other borrowers who have previously struggled to meet lending criteria. However, the reforms will also place greater emphasis on robust affordability assessments, credit risk modelling and monitoring of borrowers' ability to withstand financial shocks.
Meanwhile, the Budget's reception in financial markets could impact mortgage pricing and credit risk. With government borrowing costs already elevated, any further increase in gilt yields or interest rate expectations could put upward pressure on lenders' funding costs, affecting the availability and affordability of mortgages and other credit products.
John Barbour, Senior Director at leading banking and credit advisory consultancy Broadstone, commented:
“The Budget comes at a pivotal moment for the UK's lending and credit markets, with potential tax changes and new support for first-time buyers coinciding with a significant loosening of mortgage lending restrictions. It also arrives at a time of economic volatility, with persistent inflation putting upward pressure on borrowing costs and mortgage rates.
“Any increase in bank taxation could have knock-on implications for the availability and cost of credit if lenders respond by tightening lending criteria or becoming more selective about the borrowers they support. It could also accelerate the shift towards alternative and non-bank lenders, creating new challenges around regulatory oversight and the monitoring of credit risks across the market.
“Meanwhile, new first-time buyer incentives and greater flexibility around higher loan-to-income mortgages could open up homeownership to more people, but potentially expose borrowers to greater financial pressures further down the line. Lenders will need to ensure their affordability assessments and risk models can accurately reflect higher debt burdens and borrowers' ability to withstand financial shocks, particularly against an uncertain economic backdrop.”
