'Own Your Own Home’ schemes miss the mark as FTB numbers lag 2.2 million behind where they should be
New IMLA report :Politics of a rationed housing market
• Homeowners remain a vital demographic for the Conservatives with 46% of outright owners and 39% of mortgaged homeowners backing the Tories at 2015 General Election
• But current policy is missing the mark: between 2007 and 2015 the number of first-time buyers in the UK was an estimated 2.2 million lower than expected
• The need to save for a substantial deposit remains the biggest blocker to homeownership but many FTBs are not confident of being granted a mortgage of sufficient size despite feeling this would be affordable
• Set to get worse? Basel rules changes could reduce high LTV lending further, while government interventions in the PRS could force up rents and make it harder to save
• IMLA suggests that the capital treatment for high LTV loans supported by mortgage indemnity insurance is unreasonably harsh and should be made less onerous
First-time buyer numbers remain 2.2 million behind where they should be given demographic trends despite significant government investment in homeownership, suggesting current policy is missing the mark, according to a new report by the Intermediary Mortgage Lenders Association (IMLA.
IMLA’s latest report – The politics of a rationed housing market – assesses the politics behind current interventions in the housing market and their relative effectiveness. These interventions are likely to remain priorities for any new government that emerges in the post-Brexit political environment.
The report finds that government investment in homeownership – including through the 15 different ‘Own Your Own Home’ schemes currently on offer – is yet to have the desired upward effect on homeownership levels.
Schemes including the Help to Buy ISA and the Starter Homes Scheme are designed to boost homeownership. They will also expand a demographic that has traditionally voted for the Conservative party. At the 2015 General Election, 46% of outright owners and 39% of mortgaged homeowners voted Conservative against 28% of private tenants and only 18% of social tenants, meaning homeowners remain a vital demographic for the Conservatives.
This approach of extending support to help first-timers get on the property ladder is partly being funded by the Conservatives’ second major intervention in the housing market – managing demand through the introduction of extra tax on buy-to-let and second-home purchases. The Exchequer is set to raise around £1.7bn a year from these new taxes, although spending on homeownership far exceeds these costs. The latest UK Housing Review research from the Centre for Housing Policy estimates Government spending on homeownership in England – through grants, guarantees and loans – will total £40bn over the period 2015-2021, equivalent to over £6.6bn a year.
But despite Government efforts to bolster homeownership, first-time buyer numbers are still tracking lower than expected. The IMLA report finds that between 2007 and 2015 the number of first-time buyers in the UK was some 2.2 million lower than past demographic trends suggested it should have been.
Chart 1 – Government schemes to support high LTV borrowers
So far, 90,000 new home sales have been made under the Help to Buy equity loan, NewBuy and FirstBuy schemes (see chart 1) and a further 74,000 mortgages have been completed with the support of the Help to Buy mortgage guarantee scheme, but the government has failed to reverse the decline in homeownership. Between 2010 and 2013 (the latest year for which data is available) the number of owner-occupied homes in the UK fell by 270,000. This decline may now be stalling – the latest English Housing Survey showed no change in owner occupation rates between 2013-14 and 2014-15 – but there is yet to be any increase in homeownership levels.
Why is this the case? IMLA’s analysis of data from the Building Societies Association (BSA) suggests more people worry about accessing a mortgage than affording one. In research conducted in March 2016, 39% of aspiring first-time buyers cited access to a large enough mortgage as one of the main barriers they faced to buying a home – higher than the 34% citing the affordability of mortgage payments. This implies that many first-timers are unable to borrow a sum they consider to be affordable, which could suggest over-regulation of the market. Overall, raising a deposit was identified as the biggest barrier to homeownership, cited by 61% of aspiring first-time buyers.
Peter Williams, Executive Director for IMLA, explains:
“Politically, homeowners are a crucial demographic for the Conservatives, so the Government is throwing its weight behind a variety of different schemes to try and boost first-time buyer numbers. But current policy is still missing the mark and failing in its objective of maintaining homeownership levels. This is partly because saving for a deposit and accessing high loan-to-value (LTV) mortgages remain ongoing challenges for first-time buyers. Mortgage repayments are cheaper than ever but many first-timers simply don’t qualify for a mortgage as they can’t stump up the starting sum.
“Government has moved from an overall focus on supply regardless of tenure to a new policy centred on supply built around home ownership with the risk of making a bad situation worse. The latest move to control the rental market by taxing landlords is an own-goal by the Government. It is likely these costs will simply be passed onto tenants as landlords look for other ways to maintain their profits, making the challenge of saving for a deposit an even harder struggle and it will reduce the flow of investment into new homes for rent. There is a longer-term risk too that it has created a more volatile political environment in the housing market which may impact on owners and investors. The current political attitudes to the private rental sector are ill-focused and short-sighted.”
Basel rules changes and PRS interventions could exacerbate low homeownership levels
The IMLA report also highlights that Basel rule changes could reduce high LTV lending further. High loan-to-value mortgages have been hit by the largest absolute increase in capital requirements under the Basel rules that are already coming into force. Proposed changes to Basel regulations could mean capital requirements are set to rise further, and the availability of high LTV lending could be further reduced.
Homeownership levels could also be affected by the Government’s stance on the Private Rental Sector (PRS). IMLA warns that tenants are likely to suffer the cost of higher taxes on landlords – through higher rents – as demand for rental accommodation continues to rise, allowing landlords to raise their rents to maintain profit margins in a more highly taxed environment. This will impact aspiring first-time buyers who are trying to save for a deposit while living in rented accommodation.
Instead, the IMLA report argues that a more effective way to stimulate homeownership would be a refocus on the rules surrounding mortgage availability. In particular, IMLA believes the UK interpretation of the capital rules for high LTV loans supported by mortgage indemnity insurance is unreasonably harsh and should be made less onerous to assist higher LTV lending. Though the Government was right to view the Help to Buy mortgage guarantee scheme as a short term measure to assist this higher LTV market to recover, in reality such loans are still in short supply. Given that regulatory changes could further impact on this market there is a question as to how this vital segment can be expanded.
Peter Williams, Executive Director for IMLA, explains:
“Restoring access to high LTV loans for first-time buyers who can afford them has been an important part of the post-recession recovery, and helped avoid an even wider chasm between actual and expected first-time buyer numbers.
“Government support for high LTV activity in the last few years demonstrates they are a legitimate and valuable tool for supporting access to homeownership, especially where there is the added benefit of a guarantee to ensure stability within the financial system. It is vital this part of the market does not diminish after the end of this year, pushing many aspiring buyers back to square one.”
– Ends –
For further information or to request a copy of the research report The politics of a rationed housing market please contact:
Rob Thomas, Director of Research, Instinctif Partners, 020 7427 1406
Andy Lane / Tora Turton / Will Muir, Instinctif Partners, 020 7427 1400
NOTES TO EDITORS:
The Intermediary Mortgage Lenders Association (IMLA) is the trade association that represents mortgage lenders who lend to UK consumers and businesses via the broker channel. Its membership unites 30 banks, building societies and specialist lenders, including 16 of the top 20 UK mortgage lenders responsible for almost £170bn of annual lending.*
IMLA provides a unique, democratic forum where intermediary lenders can work together with industry, regulators and government on initiatives to support a stable and inclusive mortgage market.
Originally founded in 1988, IMLA has close working relationships with key stakeholders including the Association of Mortgage Intermediaries (AMI), Council of Mortgage Lenders (CML) and Financial Conduct Authority (FCA).
*Based on the latest available gross lending data (2014) across all distribution channels.
**IMLA’s analysis is based on comparing actual first-time buyer numbers with expected demand, factoring in the changing size and age profile of the UK population over the past 30 years. It shows that from 1985 to 2006, actual first-time buyer numbers and expected demand were closely matched with 10.26m people buying their first home compared with 10.29m ‘expected’ to do so based on historic trends.
However, since 2007, there has been a large and persistent shortfall in first-time buyer numbers every year compared with expected demand. The cumulative effect of this unprecedented collapse in first-time buyer activity is that, since 2007, 2.2 million of the UK population who would normally have been expected to buy their first home have not done so.