Its research shows a shortfall of 3.1 million first-time buyers since the financial crisis
The Intermediary Mortgage Lenders Association (IMLA) has urged the government to review regulatory barriers to first-time homeownership, suggesting it could boost first-time buyer lending.
IMLA’s latest research on mortgage affordability estimates a cumulative shortfall of 3.1 million first-time buyers since the financial crisis, as of the end of 2023. Despite favourable affordability during the low-interest rate period from 2013 to 2022, first-time buyer numbers did not meet expected levels.
The IMLA report, The Mortgage Affordability Paradox, highlights two periods in the past 40 years with notable affordability, where mortgage repayments were less than 30% of a first-time buyer’s income: 1993 to 2003 and 2013 to 2022. During the first period, first-time buyer numbers averaged 500,000 annually, compared to just 330,000 in the second.
The muted resurgence in first-time buyers from 2013 to 2022, despite good affordability, may be attributed to post-financial crisis regulations. These include higher capital requirements on high loan-to-value (LTV) lending and Financial Policy Committee (FPC) rules limiting lending at or above 4.5 times income to 15% of a lender’s advances if they lend more than £100 million annually.
Since interest rates began rising, first-time buyer numbers have sharply declined, from 405,000 in 2021 to 257,000 last year.
The report also indicates that buying is now more expensive than renting in all UK regions except the North West, Scotland, and Northern Ireland. This contrasts sharply with IMLA’s previous analysis from September 2021, which found it was cheaper to buy in all regions. Despite significant rent increases — 22% nationally and 24% in London between September 2021 and April 2024 — the cost of buying has risen even more.
An earlier IMLA report on the intergenerational divide in housing suggested that even without house price growth over the next 30 years, a buyer with a 25-year 95% LTV mortgage could be £352,000 better off than a renter. Mortgage rates would need to exceed 11.5% for renting to become financially advantageous compared to buying.
“Homeownership brings a range of invaluable benefits to individuals and their families, not just in terms of the accumulated wealth it confers but the peace of mind afforded by security of tenure,” said Kate Davies (pictured), executive director of IMLA. “It can also benefit wider society, helping to build settled communities.
“Falling first-time buyer numbers means rising demand in the private rented sector, pushing up the cost of rents and increasing the challenge facing tenants, including growing numbers of older people forced to rent into retirement. This in turn puts greater pressure on the social rented sector, already bursting at the seams.”
Davies said IMLA believes that government can help future first-time buyers by examining the regulatory barriers to ownership.
“We believe that it would be beneficial for consumers if government were to establish a framework for regulators where the interests of future first-time buyers are explicitly recognised, with affordability regulations reassessed accordingly,” she said.
“Particular attention should be paid to the FPC’s LTI flow limit, under which lenders are restricted to offering no more than 15% of their mortgages at or above 4.5 times income, as this seems at odds with the rest of the affordability regime.”
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