BSA calls for radical change to support first-time homebuyers
A properly functioning housing market relies on first-time buyers being able to afford to buy a home of their own, and the fact that today many can’t is the biggest problem for the UK’s housing market.
Although we’ve been saying this for years, decades even, now it is probably the most expensive it has been in the last 70 years for first-time buyers to get into homeownership.
There are, and have been over the last decade, several government initiatives to help first-time buyers such as Help-to-Buy in many guises, Lifetime ISAs and stamp duty holidays. Whilst these schemes have undoubtedly helped many to buy their first home, they are generally short-term and most have had other longer-term, unintended consequences that negatively impact the prospects of future first-time buyers. Effectively they have just kicked the can down the road.
Frustrated by the short-term, short-sighted, ‘quick fixes’ and the growing difficulty for first-time buyers to buy a home, the BSA along with the five biggest building societies commissioned housing market expert, Neal Hudson, to look into the issues impacting first-time buyers. We asked him to identify potential long-term solutions that would support not only today’s first-time buyers, but also the next generation of homebuyers. We were looking to find new, potentially radical, solutions to this age-old problem.
The report came out this week (22 April 2024), and highlights that the ability to become a first-time buyer is increasingly dependent on the so-called Bank of Mum and Dad, while successful first-time buyers increasingly need to have two incomes that are higher than the average. Meanwhile, those without family help, are single or on lower incomes are being excluded from homeownership. In March 2024, 32% of people reported that they want to buy their own home but don’t think they will be able to.
Affordability
The biggest challenge facing first-time buyers is affordability – both affording the cost of buying a home and the cost of owning a home. The sizeable deposit generally required to get on the property ladder has been a barrier to homeownership for some time. However, the BSA Property Tracker Report shows that the recent interest rate rises have led to affordability of mortgage repayments now being cited as the biggest challenge for would-be first-time buyers.
Building societies have a strong track record of providing innovative solutions to support those taking their first step onto the property ladder and are responsible for around one-third of first-time buyer mortgage completions. However, whilst they have the capacity to lend more to first-time buyers, radical reform is needed to fix our broken housing market.
Action
With more than 2 million fewer owner-occupier mortgages since the peak in 2002, the BSA is calling on government to commit to working with lenders, the wider housing market industry, and the public, with the sole aim of making homes more affordable, more available, and more appropriate to the needs of those living in them. We urgently need government to commission an independent review to set out a long-term strategy that will increase the number of first-time buyers, both now and in the future, with a commitment that the findings will be published and implemented within 12 months.
Alongside policy action, regulatory changes are needed, particularly to support those on the fringes to buy their own home.
The pendulum, which since the financial crisis has swung towards a stricter regulatory environment rather than towards the social benefits of higher rates of homeownership, should be reviewed to increase the availability of 95% loan-to-value mortgages.
Other areas of regulation where more flexibility is required include the cap on high loan-to-income lending. A review of the pre and post-retirement mortgage market would also ensure lending regulations better reflect the increase in longer mortgage terms and the ageing population.
There is no silver bullet to increasing first-time homebuyers, and it won’t be possible to help everyone who wants to become a homeowner in the current high price-to-income housing market. But there are many things that can help to fix the broken housing market. That starts with changes to regulations and support schemes that not only help today’s first-time buyers, but don’t fail future generations.
The report Age old problems, modern solutions. A roadmap for change was supported by the five largest building societies: Nationwide, Coventry, Yorkshire, Skipton and Leeds.
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