A record £109 billion cash injection for the UK residential property market in 2016 threatens to worsen housing inequality and make it harder for first time buyers, according to a new report.
The amount put into residential property purchases last year was up by 12% from 2015 and 57% since 2013, far outpacing the growth of mortgage lending over the same periods, the research from the Intermediary Mortgage Lenders Association (IMLA) shows.
It means that some £418 in every £1,000 spent on residential property in 2016 came in cash form, up from £377 three years ago to a post-recession high and the IMLA says that the growing role of cash in the post-recession housing market threatens to deepen social and generational divides
The trend comes despite significant Government first time buyer initiatives during the period 2013 to 2016, such as the Help to Buy schemes, which have helped thousands of borrowers with deposits as small as 5% to buy their own homes.
The report points out that three quarters of the annual growth in house purchase lending came from first time buyers in 2016 as the number of home movers fell back. At the same time, buyer affordability, measured by the proportion of income that the typical home buyer spends on mortgage interest, improved to record levels for those who were able to secure a mortgage thanks to unprecedented low rates.
However, it also points out that the growing influence of cash in the house purchase market has potentially negative implications for aspiring home owners and home movers who cannot stump up enough funds to add to a mortgage which their salary can support in order to afford a property purchase.
‘The backdrop of a broken housing market is putting growing pressure on lenders to innovate in terms of product design at a time when they have been operating within increasingly tightening regulatory boundaries,’ said Peter Williams, IMLA executive director.
‘We are seeing a number of flexible products come to market to help make home buying more accessible, for example using family guarantors, but there are limits to which flexible lending solutions can compensate for continuing structural flaws in the housing market with all the social implications that entails,’ he explained.
‘The shift towards cash is partly a consequence of trying to manage housing demand by restricting mortgage supply, with Financial Policy Committee actions in 2014 quickly layered on top of the Mortgage Market Review (MMR) affordability rules. With the market having cooled and interest rate expectations shifted since then, there is a legitimate case for asking whether current restrictions on lending are still appropriate or have become overzealous,’ he added.
He also pointed out that in the meantime, rising house prices and stagnant incomes mean that access to wealth as well as mortgage finance will increasingly separate the ‘haves’ from the ‘have nots’ in the property market if the importance of cash continues to grow.
‘The recent Housing White Paper was a missed opportunity to take strong action on housing supply, and we must hope that the upcoming election manifestos will be used as an opportunity to put that right,’ he added.
‘For all the focus on the UK’s international standing, Brexit mustn’t blind the next Government from problems brewing on its own doorstep which will drive an increasingly bigger wedge between different elements of society and block those without family financiers from having access to home ownership,’ he concluded.
