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March 2020 | IMLA

Kate Davies: Fixing our broken housing market

Kate Davies is executive director of the Intermediary Mortgage Lenders Association (IMLA)

Whilst Christopher Pincher’s appointment as the tenth housing minister in as many years has drawn some scepticism from market critics, there is room for optimism about what it could mean for the sector moving forwards.

Successive governments have made promises about how they propose to fix our broken housing market but failed to deliver. 

Now is the time for Mr Pincher and the government to think ‘big’ and put a coherent, longer-term strategy on housing policy in place.

Homeownership rates have fallen dramatically among younger people in recent years and the financial implications for these individuals are significant. 

Research from IMLA has found that the average homebuyer could be £352,000 better off after 30 years than someone renting privately for the same period, even assuming no house price growth. 

Over three decades, that is quite extraordinary. 

What’s more, if that homeowner purchased their property on a 25-year 95% LTV repayment mortgage in their 30s, they would reach retirement age without the responsibility of monthly mortgage payments and with the security of housing wealth behind them. 

The average renter, on the other hand, will have spent over £130,000 more than the homeowner over 30 years and will not have the security of their own home to live in.  They will still need to pay rent out of a reduced (retirement) income – and may have to move if their landlord wants the property back or they can’t afford it anymore. 

IMLA’s research does not suggest that the decline in homeownership is purely a result of rising house prices relative to income.  Rather, it would seem the most significant cause of lower first-time buyer numbers has been the tightening of lending criteria and enhanced affordability rules implemented after the global financial crisis. 

In particular, the current stress testing model, which subjects borrowers to tests set at rates much higher than they would realistically be expected to pay, is acting as a barrier to homeownership for a generation of potential buyers.

Many of these individuals are currently paying rent at levels higher than what their monthly mortgage repayments would be.  Something doesn’t stack up here: continued dialogue between government and industry is needed to find a solution that supports younger buyers onto the property ladder.

‘Life-time’ fixed rate mortgages are an interesting proposition, but this idea must be fleshed out in more detail.  Such products have never really gained traction in the UK, where the business and funding models for the mortgage market have developed along different lines. 

For long-term deals to take off, they would have to be sold in considerable volume and it’s not clear how this could happen.  We are open to discussion, however, and look forward to seeing how the proposal develops under Mr Pincher’s guidance.

The Help to Buy equity loan scheme has helped tens of thousands of new buyers get a foot on the property ladder, but the phasing out of the scheme poses challenges. From next year, the government will limit applications to first-time buyers, before removing the scheme completely in 2023.  Something needs to fill the gap that will be left. 

The newly proposed “First Homes” scheme may provide a partial solution – but it will rely heavily on co-operation between planners and developers and much of the detail has yet to be worked out. 

While it’s understood that the government wants to look to the private sector to come up with solutions, there’s no getting away from the need for effective investment in public sector housing and infrastructure projects. 

There’s no point building a new housing estate if there are no supporting facilities such as pubic transport, retail, schools and hospitals.

Building right

Resolving the housing crisis doesn’t just depend on helping first-time buyers. The government must also consider the challenges facing “second-steppers” and those in later-life. A recent IMLA report found that one of the main factors stopping older homeowners from moving is a lack of suitable housing. 

New properties well designed for older people are needed, situated within mixed developments (as opposed to specialist retirement developments which will not have universal appeal). The Conservatives have pledged to build a million more homes over the next five years. 

We’re asking them to be more ambitious.  We’re also asking them to consult with planners and developers to ensure these homes adequately meet the demands of the market. 

Enabling older homeowners to “right-size” rather than necessarily “down-size” to more suitable properties would help free up some larger housing stock and help reduce the logjam further down the property chain.

There is a huge opportunity for Christopher Pincher to implement a long-term, holistic strategy to fix our housing market and ensure the right homes are accessible to consumers. 

Intermediary confidence is high and the market outlook for 2020 is positive.