Are potential FTBs still locked out?

In 2018, there were 370,000 FTB mortgages completed, up 1.9 per cent from 2017 and the highest number since 2006, when 402,800 buyers stepped on to the housing ladder for the first time. Altogether they borrowed £62bn, up 4.9 per cent from 2017. Table 1 shows the number of FTBs between 2008 and 2018, as well as the fact that they now constitute 50 per cent of all homebuyers.

Table 1: Number of UK first-time buyers, 2008-18

Source: UK Finance. Copyright: Money Management

Jackie Bennett, director of mortgages at UK Finance, points to competitive deals and government initiatives such as Help to Buy that continue to boost the market. But other commentators are less optimistic about the figures. 

FTBs have long been regarded as the lifeblood of the housing and mortgage market, helping to boost its liquidity, especially as they rushed to occupy the bottom rungs of the market once occupied by the ‘second steppers’ who moved further up the ladder.

However, in its latest report on the state of the housing market, the Intermediary Mortgage Lenders Association suggests that around 2.4m households who would have usually bought a property have failed to do so, instead becoming private renters or still living with their parents.

Earnings gap

The table shows that in 2008, the number of FTBs plummeted by 47 per cent, and showed little sign of any significant recovery until 2012. Last year, Bob Pannell, economic adviser to IMLA, claimed factors such as greater participation in higher education and greater choice in the private rented sector were responsible for lowering FTB numbers. Affordability pressures, especially the gap between house prices and earnings, were also a major issue.

While it welcomes the latest rise in FTB numbers, IMLA also points out that the figure grew at a slower pace in 2018 compared with 2017, and that overall numbers are insufficient to dent the FTB shortfall of the past 10 years. 

Worse, the 2.4m households that would have been expected to buy, based on past trends, are unlikely to be able to “catch up” and enter the market later on. It believes that unless market dynamics shift considerably, many of these households risk being permanently excluded from homeownership.

Data shows that between 2003 and 2017, the number of 20 to 34-year-olds living with their parents rose 42 per cent, to 3.4m from 2.4m. In addition, the average homeowner moves only once every 19.3 years, compared with a low of every 7.4 years in 1988 – which severely restricts the liquidity of the market.

Brexit is another factor affecting the industry, particularly because of the uncertainty around any impact it may have in the future. As the IMLA report points out, when consumers are uncertain about their prospects, they are less likely to commit to a major purchase such as a house. But the current lack of activity in the market is more a function of affordability pressures and underlying demographic forces, it says.

Structural shift

In its series of reports, IMLA seeks to emphasise that the UK mortgage market has undergone a structural shift. While there has been a “robust recovery in lending volumes since the low of 2010”, it argues that the market is still not functioning as expected. Record-low mortgage rates have been accompanied by loan-to-value ratios well below the pre-crisis era, and cash purchases play a bigger role. 

The report describes these issues as “symptoms of a market that has failed to support” FTBs and those moving up the housing ladder. It adds that issues such as tighter affordability criteria and limits on lending at higher loan-to-income rates have helped to create a market that is “constrained” in its ability to help these groups of buyers.

IMLA concludes that in the wake of a slowdown in the recovery of the market, regulators should reassess the costs and benefits of the current regulatory structure, since “the costs for those locked out of homeownership can be considerable and lasting”.