Gross mortgage lending has doubled to £268bn over the past decade thanks to rising sales and house price growth, according to UK Finance’s ‘The Changing Shape of the Mortgage Market’ report.
The expansion in gross lending has been achieved with limited mortgage product innovation.
Housing sales have plateaued over the past three years and are beginning to slowly decline.
The mix of home purchasers has shifted over the past decade with first-time buyers being the largest buyer group.
Jackie Bennett, director of mortgages at UK Finance, said in the report: “Across all consumer markets expectations continue to rise and the challenges that we face are arguably more complex now than ever.
“We hope the report will act as a springboard for further discussions about the future direction of regulation and policy thinking.
“UK Finance and its members want to be part of that discussion and help to shape tomorrow’s mortgage and housing landscape.
“Our members come from banks, building societies and specialist lenders representing around 97% of the active mortgage market.
“They are very aware of the role that they play in serving customers and supporting a sustainable housing market and are well placed to address these challenges and opportunities.”
Lengthening mortgage terms have been a consistent trend for the past 15 years, allowing borrowers to stretch their incomes as affordability pressures build.
Several customer groups remain less well served in today’s mortgage market – those with small deposits, single person households and households with complex incomes.
Older households also feature in the list of under-served sectors, despite efforts to encourage more flexible lending policies.
The majority of new lending is currently based on 5-year fixes.
This will reportedly impact the size of the remortgage market in the next two to three years which currently accounts for two-fifths of lending.
While gross lending has doubled, the number of homeowners with a mortgage is falling.
Lenders have the appetite and capital to support more mortgage lending, but the market opportunity is evolving between lower and higher-risk business.
The report said that policymakers need to be clearer on the role and impact of mortgage lending in supporting the overall size and efficiency of the housing market, access to homeownership and the delivery of new homes.
Kate Davies, executive director, Intermediary Mortgage Lenders Association (IMLA), welcomed the report.
Davies added: “It provides a very clear analysis of the current issues facing Britain’s housing and mortgage markets and reflects many of the views that IMLA has recently expressed on regulation, Help to Buy and the buy-to-let sector:
“Many aspiring first-time buyers are currently paying rents which are higher than typical mortgage repayments.
“However, the combination of the requirement to find a substantial cash deposit, the affordability criteria introduced by the FCA and additional stress-testing at 3% above a lender’s standard variable rate is presenting an unrealistic hurdle, particularly where house prices are highest.
“Clearly there are significant regional differences, but individuals who are unable to buy a home face a significant long-term financial disadvantage compared with those who can.
“The closure of Help to Buy in 2023 is also likely to prove disruptive, particularly in London, and at present it is not clear how the gap which the scheme will leave is to be filled.
“Finally, Britain’s private rental sector (PRS) is being squeezed by tax and regulatory changes. IMLA has consistently called for a moratorium on any further changes to the PRS market, which is essential to Britain’s housing mix.
“Any additional regulatory action could push landlords to exit the market, reducing supply and ultimately increasing rent for tenants.
“We fully endorse the report’s conclusion that the challenges facing the housing market require long-term co-ordination of housing policy and mortgage regulation – and that policy needs to evolve rather than change abruptly in order to avoid market disruption.
“This will demand considerable focus and support right across government. We shall be urging the new administration to focus on it as soon as possible and look forward to working with them and all key stakeholders.”