First time buyer numbers in the UK remain 2.2 million behind where they should be given demographic trends despite significant government investment in home ownership, according to a new report.
The report from the Intermediary Mortgage Lenders Association (IMLS) suggests that it means that current policy behind interventions in the housing market is missing the mark but they are likely to remain priorities for any new government that emerges in the post-Brexit political environment.
The report finds that government investment in home ownership, including through the 15 different Own Your Own Home schemes currently on offer, is yet to have the desired upward effect on home ownership levels.
Schemes including the Help to Buy ISA and the Starter Homes Scheme are designed to boost home ownership. They will also expand a demographic that has traditionally voted for the Conservative party, the report points out.
At the 2015 General Election, 46% of outright owners and 39% of mortgaged home owners 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 report explains that the Exchequer is set to raise around £1.7 billion a year from these new taxes, although spending on home ownership far exceeds these costs and the latest UK Housing Review research from the Centre for Housing Policy estimates Government spending on home ownership in England through grants, guarantees and loans will total £40 billion over 2015 to 2021, equivalent to over £6.6 billion a year.
But despite Government efforts to bolster home ownership, 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.
The report also points out that so far some 90,000 new home sales have been made under the Help to Buy equity loan, NewBuy and FirstBuy schemes 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 home ownership.
Indeed, between 2010 and 201, 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 as the latest English Housing Survey showed no change in owner occupation rates between 2013/2014 and 2014/2015, but there is yet to be any increase in home ownership levels.
The 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 some 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.
It says that 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.
‘Politically, home owners 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 home ownership levels,’ said Peter Williams, IMLA executive director.
‘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,’ he explained.
He pointed out that the 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 and 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,’ said Williams.
‘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,’ he added.
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.
Home ownership levels could also be affected by the Government’s stance on the Private Rental Sector (PRS). The 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, the 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.
It also says that although 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.
‘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,’ Williams said.
‘Government support for high LTV activity in the last few years demonstrates they are a legitimate and valuable tool for supporting access to home ownership, 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,’ he concluded.