Evalaution Of Post-Crisis Regulatory Changes Could Help Post-Covid Recovery

New research suggests that post-financial crisis regulatory changes have severely restricted many first-time buyers from climbing on to the property ladder over the past decade.

According to the Intermediary Mortgage Lenders Association’s (IMLA) ‘First-time buyers: is the growth sustainable’ report, the government should look to ease many of these restrictions to help more first-time buyers meet lending criteria requirements.

The report states that ‘the 3% stressed rate that lenders must apply in the affordability calculation looks even more out of line with economic reality now that long term government bond yields are well below 1%, suggesting that interest rates will remain extremely low for decades to come.’

IMLA claim these changes could unlock a huge pool of potential first-time buyers which should rest at around 500,000 per year, almost 150,000 more than the current number which ended 2019 at 352,000.

The report claims that the property market contraction following the financial crisis in 2008 has subsequently resulted in a 2.7 million shortfall of young homeowners.

Low interest rates, increased lender appetite to help first-time buyers, government schemes and the huge numbers of potential first-time buyers should be resulting in more younger homeowners.

The report believes that, given the economic impact Covid-19 is likely to have on the economy, an evaluation of lending restrictions could be perfectly timed to help the recovery by opening up the property market to the 150,000 prospective buyers currently locked out.

The government also need to address the end of the highly successful Help to Buy scheme which has also attributed to the growing number of first-time buyers since its launch in 2013.

The freeze to the property market over the last quarter of the year has stifled the ability to both build and move into new builds. An extension beyond the 2023 cut off point could help to ensure the scheme helps as many people as possible.

Kate Davies, Executive Director of IMLA said:

“The coronavirus crisis has created great uncertainty for lenders, intermediaries and aspiring homeowners. However, early signs suggest there may be room for optimism about the market’s long-term future, with first-time buyers leading the charge on the road to recovery.

“The figures speak for themselves. Pre-crisis, the first time buyer market was showing great signs of recovery since the financial crash in 2008, with a record high of £60 billion lent to new homebuyers in 2019. And before the recent pandemic, this rise in new homeownership looked set to continue.

“There is clearly demand out there – and as life begins to return to some form of normal after COVID-19, we believe there is scope for new homebuyers to help lead economic recovery in the UK. It also seems likely that interest rates will continue to remain at a very low rate for some time. We would therefore encourage the government to review whether the existing regulatory restrictions remain fit for purpose in that environment. For example, the 3% stressed rate that lenders must apply in the affordability calculation looks even more out of line with economic reality now that long term government bond yields are well below 1%, suggesting that interest rates will remain extremely low for decades to come.”

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