First-time Buyer  

Govt urged to reconsider post-2008 mortgage restrictions

Govt urged to reconsider post-2008 mortgage restrictions

First time buyers could lead the economic recovery after coronavirus if the government reconsiders its regulation, according to the Intermediary Mortgage Lenders Association (IMLA).

The trade association is urging the government to assess the impact of regulatory changes made in the wake of the 2008 financial crisis and consider easing restrictions on lending.

These restrictions include stress testing measures and controls on the proportion of higher loan-to-income (LTI) lending.

IMLA suggested under the rules a large pool of potential buyers were prevented from entering owner-occupation, despite otherwise being able to meet the average repayment costs of a mortgage.

The trade association said there should be 500,000 first time buyers a year in the UK, almost 150,000 more than the actual figure (352,000) at the end of 2019.

It said regulations had fallen “disproportionately” on first time buyers who typically require higher LTIs compared to other borrowers. 

Kate Davies, executive director of IMLA, said: “As life begins to return to some form of normal after Covid-19, we believe there is scope for new homebuyers to help lead economic recovery in the UK.

"It also seems likely that interest rates will continue to remain at a very low rate for some time. We would therefore encourage the government to review whether the existing regulatory restrictions remain fit for purpose in that environment.

“For example, the 3 per cent stressed rate that lenders must apply in the affordability calculation looks even more out of line with economic reality now that long-term government bond yields are well below 1 per cent, suggesting that interest rates will remain extremely low for decades to come.”

Average mortgage rates reached historic lows at the start of May according to data provider Moneyfacts, and lenders have reintroduced higher loan-to-value lending after the government announced earlier this month that anyone in England could move home under new guidance.

According to IMLA, first time buyers have become an “increasingly important” part of the market for mortgage lenders, as demand from home movers, remortgage customers and buy-to-let borrowers has “stalled”.

Loans to first time buyers reached £60bn last year - the highest figure on record.

The prospect of first time buyers leading an economic recovery reflects comments from some mortgage advisers of clients looking to purchase after lockdown.

Sarah Fox-Clinch, director and property finance consultant at Fox Davidson, said her firm had received enquiries from first-time buyers “trying to get their ‘ducks in a row’ so they are in a perfect position to move quickly with a purchase once lockdown ends and they find a property”.

Likewise Anthony Rose, director at LDNfinance, previously told FTAdviser he had seen an uptick in enquiries from first time buyers, after deciding their living arrangements during lockdown had “increased their desire to purchase their own property sooner, rather than later”.

The future of Help to Buy

The trade association also suggested that now was the time for the industry and government to “work together to find a successful long-term replacement for the Help to Buy scheme”, which is due to end in 2023.