(Commonwealth)_ In the aftermath of the 2008 banking crisis, mortgage reforms aimed at ensuring financial stability have inadvertently led to the exclusion of first-time buyers from the housing market, warns a report commissioned by the Building Societies Association (BSA). The association, representing 42 members serving 26 million customers and holding over £500 billion in assets, calls for a reevaluation of affordability and repayment rules that it claims have contributed to a consistent decline in first-time buyer mortgages since the mid-2000s.
One of the key recommendations in the report is a review of the 15% cap on the amount of home loans a lender can offer, specifically those worth 4.5 times the borrower’s income. The BSA argues that this cap, introduced to prevent excessive lending, may need adjustments to strike a better balance between financial stability and facilitating access to the housing market, especially for first-time buyers.
Additionally, the BSA advocates for the reintroduction of more flexible mortgage products that allow for a combination of part repayment and part interest-only lending. This echo pre-2008 policies when interest-only mortgages were common, providing borrowers with lower monthly repayments but facing regulatory scrutiny post-financial crisis due to the risk of large, unsustainable loans. The BSA suggests that reviewing these regulations could pave the way for a more balanced approach.
The association acknowledges the historical risks associated with looser lending rules, citing instances in the 1980s and early 2000s. However, it emphasizes the need for an honest debate about finding the right balance between financial stability and ensuring access to home ownership, particularly for those with single or lower-than-average incomes, or unstable financial situations.
Chris Sykes, the technical director of the mortgage broker Private Finance, acknowledges that flexible mortgage products could complicate affordability tests for lenders. Still, he supports the idea of revisiting low-start mortgage options, where rates are back-end loaded or allow for an initial period with a higher percentage on interest-only that gradually shifts over time. Sykes suggests that collaboration between regulators and lenders could address concerns related to affordability.
The BSA’s call for a reassessment of mortgage regulations is driven by its concern over the significant decline in first-time buyer mortgages over the past decade. The association believes that the current regulatory environment, while contributing to financial stability, has inadvertently created barriers to home ownership, especially for individuals with unique financial circumstances.
The report emphasizes the importance of finding a balanced approach that considers both financial stability and the ability of first-time buyers to enter the property market. The BSA suggests that a nuanced discussion is necessary to weigh the costs and benefits of potential adjustments to existing regulations, ensuring that any changes strike an equilibrium between preventing excessive risk and fostering inclusivity in the housing market.
As the debate unfolds, industry stakeholders, policymakers, and regulators will need to carefully navigate the complexities of mortgage regulations to address the concerns raised by the BSA. Balancing the need for financial stability with the imperative of making homeownership more accessible for first-time buyers is a delicate task that requires thoughtful consideration and collaboration within the financial sector. Ultimately, finding common ground may be essential to achieving a more inclusive and sustainable housing market in the post-financial crisis era.
