Lender urges new Labour government to embrace long-term fixed rates and remove the LTI cap
There are over 600,000 fewer homeowners in the UK than there would be if homeownership rates had remained at 2010 levels, analysis from digital mortgage lender Perenna has revealed.
The shortfall, Perenna noted, is comparable to the population of a city the size of Leeds or Liverpool.
Further examination has shown that more than 1.5 million fewer homes are owned with a mortgage compared to 2010. Of these, 900,000 now own their homes outright, while 600,000 more are privately renting.
For many older borrowers, the shift represents success, as they have paid off their mortgages. However, for younger households, it indicates ongoing difficulties in buying homes, forcing them to continue renting.
According to Perenna, several factors contribute to this decline in homeownership. House prices have significantly outstripped wage growth, and strict loan-to-income (LTI) limits have reduced access to mortgage finance, disproportionately affecting young people. Approximately 380,000 fewer homeowners are now aged between 25 and 44 than if homeownership rates had remained constant since 2010.
In response, Perenna proposes two major policy changes for the new Labour government: embrace long-term fixed rate mortgages and remove the LTI cap.
Perenna pointed out that the current mortgage market is heavily weighted towards short-term fixed rate products, introducing significant interest rate risk for borrowers. The lender said the market would benefit from a broader range of mortgage options, including long-term fixed rate mortgages as rhese would remove the interest rate risk, enabling people to borrow more responsibly and helping first-time buyers into homeownership earlier in life.
Perenna added that the deposit issue in the UK housing market is partly due to the LTI cap, which restricts loan amounts often below what a household can afford on a long-term fixed rate mortgage. Current regulations allow lenders to provide loans above 4.5 times LTI for only about 15% of their loan book, typically prioritising wealthier borrowers who are already established homeowners.
The lender said long-term fixed rate mortgages protect borrowers from interest rate spikes, potentially allowing them to borrow more than 4.5 times their income without risking payment shocks. However, the current LTI cap restricts the lending of these products, limiting first-time buyers’ access to homeownership.
“There are serious long-term consequences of more and more people and families unable to access homeownership, which will create issues in the future,” said Arjan Verbeek (pictured), chief executive of Perenna.
“The mortgage market needs new types of products that offer consumers more choice and can responsibly help them into homeownership earlier in life. Our call-to-action outlines clear solutions which offer hope that many people can become homeowners.
“It is essential that Labour unlocks the long-term fixed rate mortgage market to prevent another 600,000 missing homeowners.”
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