With global economic uncertainty deepening and geopolitics looking increasingly unstable, the government’s hunt for growth seems more challenging by the week. But on the domestic front, there are specific areas where simple changes could materially boost the nation’s finances. The housing market is one.
Despite the worldwide doom and gloom, the UK property market is thriving, with average values rising by 5.4% in the year to February, according to the Land Registry. And this is no blip – Savills research reveals that the average price of a mainstream UK residential property rose by 23% in the five years to December 2024, and predicts further growth of 23.4% in the next five years.
First-time buyer numbers sprang back last year, increasing by nearly 20% to 341,068. Admittedly, this resurgence followed a slow 2023 due to the soaring cost of borrowing, but it clearly demonstrates the continued keen appetite for homeownership in this country.
Encouraging more homeownership would stimulate growth in multiple parts of the economy, generating activity in industries ranging from construction to mortgage lending, to ancillaries such as financial advice, insurance, retail furnishing, garden supplies, DIY... the list goes on.
Early on in this administration, the government signalled its intention to relax regulation to promote growth, and the subsequent loosening of the rules around stress testing gives lenders a little more headroom to provide mortgages to more first-time buyers. However, other handbrakes on lending remain.
IMLA has long held that increasing or scrapping the loan-to-income (LTI) limit - a Financial Policy Committee (FPC) rule which restricts lending at or above 4.5 times income to no more than 15% of mortgage lenders’ advances - would be a sensible measure to boost lending to first-time buyers, single purchasers and those on moderate incomes. We believe fears that such a change would lead to a material spike in defaults and repossessions are unfounded. Lifting the LTI limits would simply allow mortgage providers to lend to larger numbers of borrowers who have already proven that they can comfortably afford to repay the mortgage in question. The mortgage industry has formed a united front on the issue of the LTI and the FPC appears to be listening, but has not yet shifted its position.
Some form of government Help to Buy scheme would also boost the market. Historically, these schemes have offered first-time buyers loans of between 5% and 20% of a property’s purchase price, interest-free for five years. Help to Buy has its drawbacks, not least politically. Using taxpayer’s money to help people purchase property is not a traditional Labour approach. But if the government is serious about growth, it may need to think beyond the obvious political messaging. Let’s not forget, 380,000 people used Help to Buy to get on the housing ladder between 2013 and 2023. Reviving a scheme with which the industry is familiar could be a quick and effective solution to ramp up activity, possibly with more modest criteria attached. Former schemes were criticized for their generous price caps (the maximum purchase price for qualifying properties in London and the South East was £600,000), so any new support might be best kept to smaller starter homes.
We also need far more support for shared ownership schemes, many of which are five times oversubscribed. Helping as many people as possible out of rented accommodation and into their own homes makes sense for any government, conferring security of tenure and protecting homeowners – and government – from rising housing costs during retirement.
Of course, even with such help, many aspiring homeowners will not be in a position to buy a home any time soon, and will continue to rely on the Private Rental Sector (PRS). Renting privately makes sense for some people, enabling them to live where the jobs are. For others it is the only choice - with an acute shortage in the supply of social homes and around a million people on waiting lists, the PRS will continue to play a key role in housing a large proportion of the UK’s population (currently 19%) for the foreseeable future. We desperately need more privately rented property to help redress the supply/demand imbalance, pushing rents to their current record highs. Over the last 15 years, successive administrations have penalised landlords with mounting severity through ballooning taxes and regulatory requirements – the latter soon to be made yet more onerous by the Renters’ Rights Bill. Surely it’s time to reverse the trend? The PRS in England and Wales supports around 390,000 jobs and contributes roughly £45bn to the economy annually. Providing incentives to landlords to invest further would dampen rent inflation, helping tenants, while encouraging economic growth at the same time.
Decreasing the tax burden for landlords and/or increasing financial support to aspiring homeowners may feel counterintuitive to a government struggling to keep the economy on an even keel. But due to the nature of the UK housing landscape and its interconnectedness with so many other sectors, any government ‘investment’ in this market could promise rich returns for the wider economy, materially boosting economic growth and inward investment.
At the very least, moves should be made as soon as possible to relax regulation in order to enable more people to become homeowners. As one IMLA member recently put it: “which gives a better consumer outcome – access to borrowing, or a lifetime of renting?”
