"As life begins to return to some form of normal after Covid-19, we believe there is scope for new homebuyers to help lead economic recovery in the UK."
IMLA is asking the government to assess the impact of post-financial crisis regulatory changes and consider easing these restrictions to help first-time buyers lead the economic recovery in the wake of the Covid-19 pandemic.
IMLA suggests current stress testing measures and controls on the proportion of higher loan to income lending are preventing a large pool of potential buyers from entering owner-occupation, despite being otherwise able to meet the average repayment costs of a mortgage.
The Association estimates that the sharp contraction in the number of first-time buyers after the financial crisis in 2008 has created a cumulative shortfall of 2.7 million young households which could have otherwise been expected to buy a home. According to IMLA, there should be 500,000 first-time buyers a year in the UK – almost 150,000 more than the actual figure of 352,000 at the end of 2019.
IMLA says this large pool of potential first-time buyers – along with more affordable mortgages, due to low interest rates, and increased appetite from lenders to support this group – is positive, but is urging the government to examine regulatory barriers that may be restricting the number of aspiring first-time buyers planning to step onto the housing ladder.
IMLA also suggests that that now is the time for the industry and government to work together to find a successful long-term replacement for the Help to Buy scheme, which is due to be restricted to first-time buyers from 2021 and ended completely in 2023.
Kate Davies, executive director of IMLA, said: “The coronavirus crisis has created great uncertainty for lenders, intermediaries and aspiring homeowners. However, early signs suggest there may be room for optimism about the market’s long-term future, with first-time buyers leading the charge on the road to recovery.
“The figures speak for themselves. Pre-crisis, the first time buyer market was showing great signs of recovery since the financial crash in 2008, with a record high of £60 billion lent to new homebuyers in 2019. And before the recent pandemic, this rise in new homeownership looked set to continue.
“There is clearly demand out there – and as life begins to return to some form of normal after Covid-19, we believe there is scope for new homebuyers to help lead economic recovery in the UK. It also seems likely that interest rates will continue to remain at a very low rate for some time. We would therefore encourage the government to review whether the existing regulatory restrictions remain fit for purpose in that environment. For example, the 3% stressed rate that lenders must apply in the affordability calculation looks even more out of line with economic reality now that long term government bond yields are well below 1%, suggesting that interest rates will remain extremely low for decades to come.”
