The cost of buying a home and the affordability of repayments have shot up, with many prospective first-time buyers finding themselves in a "very difficult situation", the Building Societies Association (BSA) says.
The association said significant changes in regulation are required to help those struggling to afford a mortgage to get on the property ladder.
The report’s findings, due to be published in April, will suggest that, since the financial crisis, the balance between maintaining financial stability and growing the number of first-time buyers has tilted too far in favour of stability. The imbalance, it says, has led to the exclusion of many would-be homebuyers from the market.
Indeed, mortgaged home ownership has been in decline since the mid-2000s, and even earlier for younger age groups. The BSA noted that the number of outstanding owner-occupier mortgages has fallen by over two million since its peak in 2002, and is back around the levels last seen in the 1980s.
It said that the affordability challenges facing prospective first-time buyers since the financial crisis “have contributed to fewer people managing to buy their first home”.
More recently, the end of the Help to Buy equity loan scheme has also “made it more challenging for those buying new homes”, the BSA wrote.
It added that becoming a first-time buyer is “possibly the most expensive it has been over the last seventy years”.
‘A balancing act’
As part of a long-term strategy to make homes more affordable and available, the BSA is calling for a review of the 15% cap on the volume of lending that banks and building societies can extend to borrowers using a four-and-a-half times income multiple.
In the report, which has the support of major societies Nationwide, Coventry, Leeds, Skipton and Yorkshire, the association noted that the cap on high-income lending may be less relevant in a higher-mortgage-rate environment.
However, it wants an immediate review to assess whether it would be better to target mortgages above the cap solely at first-time buyers.
First-time buyers should also be able to take a mortgage out on a part-repayment, part-interest-only basis, the BSA suggested, giving them the flexibility to shift between the options over the life of the loan. It also wants regulators to review the current constraints for borrowers heading towards and into retirement, allowing them to borrow flexibly beyond retirement age.
Further, the BSA wants a review of the relative costs and benefits of a stricter regulatory environment versus those of higher homeownership rates. It said that, by striking the right balance between financial stability and enabling access to homeownership, there would be no need for short-term Government-backed mortgage schemes to stimulate the market.
Paul Broadhead, head of mortgage and housing policy at the BSA, said: “A properly functioning housing market is dependent on first-time buyers being able to afford their first home. Whilst building societies are creating bespoke, targeted innovations within the current regulatory framework, new thinking and radical changes are needed.
“Many things can be done to fix the broken housing market. But we need to ensure that changes to regulations and support schemes not only help today’s first-time buyers, but don’t fail future generations.”
