Firing lineDec 5 2019

Kate Davies of IMLA on the lost generation of home buyers

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Kate Davies of IMLA on the lost generation of home buyers

But this is not surprising to her; it is indicative of the wave of change the mortgage market has been undergoing.

In her role as executive director, she organises meetings with members, who are all lenders of varying descriptions, including banks, building societies and members of the Finance and Leasing Association.

Together they talk about the big market issues and challenges and engage regularly with the Bank of England, regulators and the government. Some of those questions look at unintended consequences of regulatory changes.

For someone who spent 18 years at the Council of Mortgage Lenders and worked for the Equity Release Council, she has been very close to that wave of change.

 

“You need a big whiteboard to put it all together,” Ms Davies says. “You can focus on one area and then realise that perhaps something else is causing it.”

For example, as shown in a recent IMLA report, there are many people who Ms Davies says would have been expected to have bought a home over a 10 to 20-year period, but did not.

“That’s kind of a lost generation of home-buyers. Why did that happen? The report is not saying it is the fault of Financial Conduct Authority regulation. 

“But it is asking: Over the past 10 years since the financial crisis, house prices have gone up, but interest rates and inflation have stayed low – why have people not been able to buy?

“It is inviting the regulator to look at what has happened and for everyone to reflect and ask: did we mean this to happen? We need the politicians as well as the regulator to think, ‘What have we done? How has this happened? Did we mean this to happen? And, if we didn’t, what might we do to change that again?”

Stress-testing

Ahead of the December 12 general election, IMLA has compiled its own wishlist, asking whoever forms the next government to address the challenges facing Britain’s housing market.

In no particular order, affordability tops the list. IMLA wants to see a re-evaluation of the BoE’s stress-testing rules. 

It says the current rule of the lender’s standard variable rate plus 3 percentage points is far above the rate most borrowers will realistically pay, blocking people on lower incomes from getting onto the housing ladder.

Interestingly, Ms Davies says there is no available date that can split out the proportion of people failing the affordability due to the SVR and stress test on top. So the trade body set about trying to find out.

Ms Davies adds: “If we are able to come up with some evidence for the Prudential Regulation Authority and FCA, that we think X per cent of people are not getting loans who could afford them, then that is a different sort of discussion, but it is very difficult to find.

“It is incredibly difficult to disentangle whether customers failed because of the affordability or because of the stress test on top. You also can’t get information on how many people were told by an intermediary they would not get through, so the application never went to the lender.”Supply and demand

The question of housing supply also features on the wishlist, but Ms Davies says it is no longer as simple as building more properties.

Although it is still a very valid point, she adds that when trying to understand the reason for the log jam, perhaps the scope should be widened to look at whether it is because builders are not able to or are reluctant to release land, or whether they are only building certain types of properties in any volume – and why that is.

“Then you also look at the sort of properties you want to be built. Do we need more family homes?” Ms Davies says. 

“There are probably quite a lot of family homes, under-occupied by older people; why is that?”

Other issues on the wishlist include looking at what will replace the Help-to-Buy scheme, a review of stamp duty and assisting the FCA in its further investigation on mortgage prisoners. 

Pension complications

Pension freedoms have also added layers of complexity, not just to the pensions sector, but also the mortgage market.

For those who want to release equity from their property but have little to no income, equity release is an option, while others who are comfortable with monthly repayments and want the chance to leave something to their relatives can opt for a retirement interest-only mortgage.

To qualify for a Rio, the amount you can borrow will depend on your retirement income.

Ms Davies says: “Things are getting more complex. Pension provision is changing. 

“For the current generation of 75-plus years, there will be a high proportion on final salary schemes or annuities bought.

“For [middle-aged] people and lower, people will have different pensions – some have cashed some of it in or taken drawdown. Even though the pension is there it’s not locked away, which is why people really need to understand how much impact it has on mortgages.”

Ima Jackson-Obot is deputy features editor ofFinancial Adviser and FTAdviser

 

Kate Davies’ career highlights:

o    Jan 2018-present: Executive director of the Intermediary Mortgage Lenders Association

o    2014-present: Chairman of Property Codes Compliance Board

o    2012-2018: Standards officer at Equity Release Council

o    2011-2017: Non-executive director of Darlington Building Society

o    1991-2008: Senior policy adviser at the Council of Mortgage Lenders