One of the many important issues facing the new PM is how to address challenges in the housing market, including helping ensure more of Generation Rent can become Generation Buy.
In a 35-page paper I argue more needs to be done “to turn Generation Rent into Generation Buy”.
Increasing housing supply in places where people want to live & boosting turnover are vital issues. This paper accepts that and focuses on another critical aspect of the housing debate: access to mortgage finance for potential first time buyers.
The announcement in June 2022 of a mortgage market review presents the incoming PM with an excellent and timely opportunity to help first time buyers take the first step on the property ladder.
Currently, first time buyers face 3 hurdles: the challenge of saving for a deposit in a rising housing market; limits on loan to income mortgages; and the need for greater availability and a larger number of high loan to value mortgages.
There is a strong possibility that the mortgage market review goes down the route of mandating that borrowers take out insurance in order to access higher loan to value mortgages. This is expensive and should not be the only approach considered.
The best approach would be for the Government to step back from intervention and allow the market to provide the solution. Already we are seeing more innovation in the mortgage market with the provision of blended mortgages. This should be encouraged.
Blended mortgages allow mortgages to match peoples’ needs in a more flexible and efficient way. That is because they allow lenders with different appetites towards risk and maturity to help provide the solution, as my policy paper outlines.
The Government should work with lenders & ratings agencies to ensure that it is mandatory for paying rent to count towards a credit score, in order to allow good credit borrowers who cannot save for a deposit to be able to have access to high LTV mortgages in order to buy.
The number of households that rent has sharply increased from 2.8 million to 4.5 million over the past decade with younger households accounting for the majority of the private rental sector.
There has been a significant increase in number of first time buyers in recent years, increasing from 193,940 in 2009 to 409,370 in 2021, however much more can be done. Average age of first time buyer up from 29 to 32 in the past decade.
Over the past decade, there has been no change in the proportion of household income spent on mortgages (18%).
Contrastingly, rent payments as a proportion of household income represented 27% of household income for social renters and 31% for private renters.