IMLA urges government to review regulatory barriers to first-time ownership
25 June 2024
1. Post-crisis decade sees 3.1m shortfall in first-time buyers
2. Tougher regulation supressing homeownership
3. Average long-term cost of not buying: £352,000
London 25th June 2024
IMLA’s latest research on mortgage affordability estimates that the cumulative shortfall in first-time buyer numbers since the financial crisis reached 3.1m by the end of 2023. Despite strong affordability during the ultra-low interest rate years from 2013 to 2022, first-time buyer numbers failed to pick up to the level previous trends would have suggested.
IMLA’s report, The mortgage affordability paradox, reveals that, over the last 40 years, two periods have provided excellent affordability, with mortgage repayments taking up less than 30% of a first-time buyer’s income: 1993 to 2003 and 2013 to 2022. In the first period, first-time buyer numbers averaged 500,000 a year. In the second, the figure was just 330,000.
One possible explanation for the muted resurgence in first-time buyer numbers in 2013-2022, despite excellent affordability, is the wide-ranging regulation that was put in place in response to the financial crisis, notably higher capital requirements on high LTV lending and the Financial Policy Committee (FPC) rule restricting lending at or above 4.5 times income to no more than 15% of lenders’ advances (if they lender more than £100m a year).
The impact of tougher regulation has been compounded since interest rates started rising, with first-time buyer numbers dropping sharply from 405,000 in 2021 to 257,000 last year.
The report also reveals that it is now more expensive to buy than to rent in every region of the UK except the North West, Scotland and Northern Ireland. This is a dramatic turnaround since IMLA’s last analysis of affordability, which was published in September 2021, when it was cheaper to buy than to rent in all regions. The change has occurred despite a sizeable rise in rents. Between September 2021 and April 2024, rents rose by 22% nationally and 24% in London.
An earlier IMLA report on the intergenerational divide in the mortgage and housing markets calculated that, even assuming no house price growth for the next 30 years, someone buying an average home, initially with a 25-year 95% LTV repayment mortgage, could be £352,000* better off than someone who continued to rent privately. Mortgage rates would have to exceed 11.5% over the life of the loan before renting was as financially advantageous as buying.
Kate Davies, Executive Director of IMLA, commented:
“Homeownership brings a range of invaluable benefits to individuals and their families, not just in terms of the accumulated wealth it confers but the peace of mind afforded by security of tenure. It can also benefit wider society, helping to build settled communities.
“Falling first-time buyer numbers means rising demand in the private rented sector, pushing up the cost of rents and increasing the challenge facing tenants, including growing numbers of older people forced to rent into retirement. This in turn puts greater pressure on the social rented sector, already bursting at the seams.
“IMLA believes that government can help future first-time buyers by examining the regulatory barriers to ownership. We believe that it would be beneficial for consumers if government were to establish a framework for regulators where the interests of future first-time buyers are explicitly recognized, with affordability regulations reassessed accordingly. Particular attention should be paid to the FPC’s LTI flow limit, under which lenders are restricted to offering no more than 15% of their mortgages at or above 4.5 times income, as this seems at odds with the rest of the affordability regime.”
