More than 2.4 million households in the UK who would have expected to have bought property for the first time after the financial crisis are still waiting at a time when the mortgage market is forecast to remain flat.
A new report from the Intermediary Mortgage Lenders Association (IMLA) estimates that nearly five million borrowers would have been expected to buy their first homes since the financial crisis, but only 2.5 million people became first time buyers since 2008.
This means more than 2.4 million Britons have yet to make their first step onto the housing ladder and breakdown of the figures shows that whereas 449,000 of 35to 54 year became owners between 1996 and 2006 in net terms, ownership among 35 to 54 year-olds fell by 57% between 2006 and 2016 to just 191,000.
The report says that although low mortgage rates are supporting borrower affordability, high house prices and regulatory constraints on lending post crisis, such as the need to stress interest rates against significant future increases to determine affordability, as key reasons for difficulties in borrowers moving onto and up the housing ladder.
It points out that a significant jump in lending would be required to help those who are still waiting to get onto the housing ladder, but the IMLA predicts that this will be unlikely this year or next as the mortgage market is set to remain steady in the face of wider economic uncertainty.
According to the report, 2019 gross mortgage lending will total £269 billion, broadly unchanged from 2018’s level. And, while remortgaging has been the main driver of increased lending over the past few years, the IMLA predicts remortgaging will also be broadly stable at £102 billion in 2019 as the popularity of product transfers continues to grow.
Looking forward, given the flat picture in the housing market and the underlying shift from remortgage activity to product transfers as seen in 2018, the IMLA expects a slight dip in both lending and remortgaging in 2020.
With a need for more lending options for those trying to get onto the housing ladder, the report suggests that, due to a broad downward trend in mortgage lenders’ spreads, lenders have been encouraged to look to higher LTV lending to maintain profitability.
The report notes that the marginal cost of high LTV lending is falling, reflecting the strong credit performance of high LTV business written since the financial crisis. It also found that high LTV lending over the past five years shows exceptionally low arrears by historical standards, making high LTV lending more attractive as future loss rates on such business reduce.
That said, the IMLA found that while there has been a sustained increase in lending over 75% and up to 90% LTV, lending above 90% LTV still remains very subdued, not surpassing 5% of total lending in any quarter since the financial crisis.
The report also points out that landlords are finally feeling the effects of the 2015 adverse regulatory changes, which the IMLA forecasts will be a major reason for a lacklustre buy to let sector in 2019 and 2020.
Indeed, it predicts that gross buy to let lending will fall 6% to £36 billion in 2019 and £35 billion in 2020, with landlords purchasing 59,000 rental properties in the coming year, down from 66,000 in 2018.
While the market will remain flat, the IMLA says that lending via intermediaries will increase as more borrowers seek expert advice to navigate a tough market. Mortgage brokers undertook 74% of mortgage lending by volume in 2018, the highest share on record, and the IMLA expects this trend to continue.
It suggests that intermediary lending will rise to £169 billion in 2019, and £171 billion in 2020, as the share of lending introduced by intermediaries rises to 75% in 2019 and 76% by 2020.
‘We have had a robust recovery in lending volumes since the low of 2010, and the continuing combination of steady inflation and low unemployment should underpin the housing and mortgage markets in 2019 and 2020. Intermediary driven lending continues to go from strength to strength as more people than ever turn to a broker to find the most suitable mortgage,’ said Kate Davies, IMLA executive director.
‘But the mortgage market isn’t fully functioning as one would expect. Record low rates and historically low LTV ratios, coupled with cash and household equity being injected into the housing stock, are more usually associated with a continuing period of recession,’ she explained.
‘These are symptoms of a market that has failed to support first time buyers and those moving up the housing ladder in the way it did for previous generations. Although low mortgage rates are supporting borrower affordability, high house prices and regulatory constraints on lending make it harder for borrowers to move onto the housing ladder,’ she pointed out.
‘With the mortgage market now following a gentle trajectory, it is a good time for policy makers and regulators to reassess the costs and benefits of the present regulatory structure, recognising that the impact on those locked out of homeownership can be considerable and lasting,’ she added.
