The Intermediary Mortgage Lenders Association (IMLA) has called for regulators and the next government to review loan-to-income limits on mortgage lending.
The Bank of England’s Financial Policy Committee (FPC) restricts mortgage lending above 4.5 times income to 15% of a bank or building society’s mortgage book – which IMLA said is acting as a barrier for first-time buyers seeking mortgage finance.
Kate Davies, executive director, 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 recognized, with affordability regulations reassessed accordingly.
“Particular attention should be paid to the FPC’s LTI flow limit… as this seems at odds with the rest of the affordability regime.”
IMLA’s report, The mortgage affordability paradox, reveals that over the last 40 years two periods have provided excellent affordability, with mortgage repayments taking up less than 30% of a first-time buyer’s income: 1993 to 2003 and 2013 to 2022.
In the first period, first-time buyer numbers averaged 500,000 a year. In the second, the figure was just 330,000.
The major difference between these two periods is regulatory restrictions that were put in place after the Global Financial Crisis.
The impact of tougher regulation has been compounded since interest rates started rising, with first-time buyer numbers dropping sharply from 405,000 in 2021 to 257,000 last year.
It is now more expensive to buy than to rent in every region of the UK except the North West, Scotland and Northern Ireland.
This is a dramatic turnaround since 2021, when it was cheaper to buy than to rent in all regions.