I’ve talked a lot about first-time buyers in my comment piece over the years, but I make no apology for returning to the topic again this month, as it is impossible to have a properly functioning housing market without ensuring those looking to buy their own home can take their first step into homeownership.
Unless we keep focusing on the barriers faced by first-time buyers and take radical action, then we’ll never get to a point of a thriving UK housing market. But we can’t just look at current first-time buyers. Help provided today must also be sustainable and ensure homes and mortgages are affordable for the next generation of homebuyers. Hence the need for a long-term strategy that I keep banging on about.
Balancing supply and demand has been my mantra for as long as I can remember. We have seen many interventions that support demand – schemes such as Mortgage Guarantee, Help-to-Buy, LISAs and Stamp Duty holidays – but very little on housing supply, you could argue Help-to-Buy did contribute to supply, but alone, not in sufficient numbers. The result has been house price increases way above wage growth, leading ultimately to greater affordability issues for future new first-time buyers. Effectively, whilst they have initially helped some first-time buyers, they have just kicked the challenge down the road.
Alongside these one-sided, demand-only, interventions, since the financial crisis tightening of regulation has been far more towards providing financial stability than supporting first-time buyers. The regulatory changes have resulted in many would-be homebuyers being excluded from getting an affordable mortgage. We have seen UK Finance statistics showing that almost a quarter (23%) of first-time buyer mortgages are now taken out over 35 years, compared to just 9% at the end of 2021, just before the Bank of England started to increase the Bank Rate. This is clear evidence that the tighter regulatory focus and monetary policy means that for many new homebuyers the only way to buy their first home is by stretching the mortgage term.
Whilst there are many examples of building societies responding to the challenges faced by today’s first-time buyers with innovative products and services that fit within the regulatory framework – such as Skipton’s 100% mortgages and Cambridge’s Rent to Home scheme, amongst many others – more radical and long-term reform is needed. And this reform needs to go beyond those at the start of their homeownership journey. With the growing length of mortgage terms, greater flexibility of lending into retirement must also be considered.
At the BSA we have commissioned property expert Neal Hudson to review the housing market with a wider lens. He will consider the balance between any support given to first-time buyers and the effects of that support on the wider housing market, the economy, and future homebuyers.
The full report will be released next month, but his initial findings highlight a need to strike a balance between financial stability and enabling access to homeownership. Initial suggestions include changing regulations to allow mortgages to be more flexible, such as allowing more part-repayment, part-interest-only lending with the flexibility to shift between them and reviewing the 15% cap on lending at 4.5 times income.
Paul Broadhead is head of mortgage and housing policy at the Building Society Association
