IMLA is urging the government to assess the impact of and consider easing these restrictions to help first-time homebuyers lead the economic recovery in the wake of the financial crisis caused by the COVID-19 pandemic.
The trade body 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, based on demographic trends, 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 at the end of 2019 (352,000), despite a resurgence in the market since 2008.
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 – suggests the long-term outlook for the market is positive, but the government will need to examine the regulatory barriers that may be restricting the number of aspiring first-time buyers planning to step onto the housing ladder.
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.”
