Around 3.5 million potential first-time buyers have dropped out of the housing market since the 2008 financial crisis, the latest data from the Intermediary Mortgage Lenders Association shows.
These buyers “who might have expected to buy a home since the financial crisis are still waiting to enter the market — held back by unnecessary barriers rather than the ability to meet mortgage payments,” says the broker body.
It says that “overly stringent regulation is a major contributing factor”, blaming the loan‑to‑income flow limit as a key restriction in its study The Mortgage Affordability Paradox: The Picture in 2025.
Currently, the Bank of England’s Financial Policy Committee (of which the Financial Conduct Authority is a member), rules say that new residential mortgage loans are capped at, or greater than, 4.5 times salary to no more than 15% of total home loans a year.
Nationwide, Skipton Building Society and UK Finance are among a number of lenders and bodies who have also called for this limit to be raised to around 20%.
However, Bank of England governor Andrew Bailey and Financial Conduct Authority chief executive Nikhil Rathi have warned that relaxing this limit may lift possessions and raise house prices.
Earlier this week, the Financial Conduct Authority launched a wide-ranging mortgage review, that includes options on scrapping five-year mortgages, cutting the 1% minimum stress test margin and widening the use of later life lending.
Imla says that since its previous 2021 report, the number of FTBs who have failed to enter the market has jumped by 800,000.
Its earlier report found that “despite years of ultra-low interest rates, first-time buyer numbers had failed to recover since the financial crisis.
It concluded that “based on propensity to buy versus actual property purchase figures, 2.7 million potential purchasers who would have been expected to buy their first home had not done so”.
Its new study says that “despite the higher mortgage rate environment post-[former Prime Minister Liz]Truss, 330,000 FTBs got on the ladder last year.
“This figure is 15% higher than the long-term average of the past 17 years and clearly demonstrates suppressed demand.”
Imla executive director Kate Davies (pictured) adds: “Clearly, more action is needed to help first-time buyers. In particular, the loan-to-income flow limit restricting how many mortgages lenders can offer at higher loan-to-income levels is blocking many sensible borrowers from buying their first home.
“The government’s promise to reduce financial services red tape is welcome, and we await the outcome of the Financial Conduct Authority’s Mortgage Rule Review with interest.
Davies points out: “Many lenders are innovating with longer mortgage terms, extended income multiples and higher loan-to-value products.
“Now we need the government and regulators to follow through on the necessary rule changes to really move the dial.”
