Despite the ultra-low interest rate environment and strong affordability between 2013 and 2022, first-time buyer numbers have failed to recover to the “level previous trends would have suggested”.
The report from the Intermediary Mortgage Lenders Association (IMLA), revealed that over the last 40 years, the two periods that offered “excellent affordability” – defined as mortgage payments taking up less than 30% of a first-time buyers’ income – took place between 1993 to 2003 and 2013 to 2022.
Between 1993 and 2003, first-time buyer numbers stood at an average of 500,000 a year while during the second period of 2013 to 2022, this figure was just 330,000.
IMLA said one possible reason for the “muted resurgence” in first-time buyers between 2013 and 2022 was “wide-ranging regulation” imposed post-financial crisis. This includes higher capital requirements on high loan to value (LTV) lending and restricted lending at or above 4.5 times income.
The trade body said this has been compounded by interest rates rising with the average number of first-time buyers dropping from 405,000 in 2021 to 257,000 last year.
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Buying more expensive than renting in most regions
From a regional perspective, the research found it was more expensive to buy than to rent in every region barring the North West, Scotland and Northern Ireland.
This is a change from research in 2021 which showed that it was cheaper to buy than to rent in all regions.
The report revealed that between September 2021 and April 2024, rents rose by 22% nationally and 24% in London.
Previous IMLA research showed that, even assuming no house price growth in the next 30 years, someone buying a home with a 25-year 95% LTV repayment mortgage could be £352,000 better off than someone renting. It added that mortgage rates would have to surpass 11.5% over the life of the loan for borrowers to be worse off than renting.
Government urged to review ‘regulatory barriers’ for first-time buyer affordability
Kate Davies, executive director of IMLA, said homeownership could bring a range of invaluable benefits to individuals and their families in terms of “accumulated wealth” but also peace of mind due to secure tenure and creating “settled communities”.
She said: “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 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 recognised, with affordability regulations reassessed accordingly.
“Particular attention should be paid to the Financial Policy Committee’s (FPC) loan to income (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.”
Suggestions for the regulator to re-examine the LTI cap have also been made by Jeremy Duncombe, director of mortgage distribution at Yorkshire Building Society and managing director at Accord Mortgages. He is also on the management committee for IMLA as a director.
