simplybiz. co. uk 15 as due to affordability constraints, today’ s first-time buyers are now facing the prospect of buying later and borrowing for longer. The projected median age of a first-time buyer at maturity is 65, up from 56 in 2005.
With an ageing population and the fact that people are living longer, it is essential that our mortgage market ensures that if a borrower needs and can afford a mortgage in retirement, then the option is available to them.
Progress has started
Since the publication of our first-time buyer reports, we are beginning to see positive steps in reviewing and improving how the mortgage market operates.
Loan-to-Income multipliers
The Financial Policy Committee’ s( FPC) decision to allow lenders to have greater flexibility by removing the Loan-to-Income( LTI) flow limit, is starting to benefit creditworthy borrowers and help stimulate economic growth. Combined with the decision to raise the threshold at which these limits apply, these long over-due changes are welcome.
Importantly, these changes are permissive and do not replace lenders’ own risk appetites, nor do they circumvent the responsible lending practices and mortgage rules. They do, however, enable lenders to support customers, including first-time buyers, who can afford to borrow more but have previously been shut out of the market.
Simplified rules
The Financial Conduct Authority( FCA) has introduced flexibility and choice in how mortgage borrowers engage with the process and manage their account in the future. These changes allow customers to speak with their lender during the application process without needing full advice.
While this could lead to fewer people receiving advice, the initial impact is expected to be limited to customers who go directly to lenders, rather than those who use the services of a mortgage broker. For those using a mortgage broker, it will likely remain business as usual. Obtaining mortgage advice remains an important part of the process, it remains the appropriate thing for the majority of those buying a house or remortgaging.
Building Societies Sourcebook
The removal of the outdated Building Societies Sourcebook supports the Government’ s agenda to promote mutuals and homeownership. This allows our members to compete on a more level playing field with their plc competitors.
Mortgage Rule Review Discussion Paper( DP)
The biggest development, however, has been the FCA’ s proactive approach through the wide-ranging Mortgage Rule Review Discussion Paper. This offers a timely opportunity to reshape the mortgage market to ensure it is not only fit for borrowers of today, but future homeowners too – and we must grab the opportunity with clear, radical and innovative proposals.
Changing customer demographics, and the increasing demand for tailored lending solutions, must be matched by responsible and flexible regulation.
The FCA’ s goal to support innovation, competition and market growth requires updating and streamlining legacy rules that are inhibiting progress.
The use of technology throughout the customer journey is also central to transforming the mortgage market.
We have consistently highlighted the need to compare the customer outcomes of homeownership with those who remain in rental accommodation, often at a higher cost and without the opportunity to build property wealth. Research from Standard Life also suggests that lifetime renters would need an extra £ 391k in savings to cover additional rental costs throughout retirement, compared to homeowners who have paid off their mortgages.
We support FCA’ s assessment of the need for a more balanced approach to risk, but we also urge caution. The recent LTI changes and clarification on the stress rate test should be allowed to fully embed before committing to any future regulatory changes.
We would also encourage that priority is given to changes that could deliver the greatest benefit to market growth and to help more people into homeownership, through a phased permissive approach.
For example, while reviewing and simplifying the ESIS might have some benefits, the time, effort and cost involved in the necessary IT changes would be huge and are unlikely to deliver any greater access to lending for mortgage borrowers.
There’ s more still to do
Regulatory change will help shape the future of the mortgage market, however, it is not a complete solution. To create a dynamic, growing and inclusive market, the mortgage industry must work together to address the challenges we face today, and plan for the future. Success will require collaboration and co-ordination across the mortgage and housing industry, from government and lenders, to conveyancers, brokers and technology providers.
Only through a co-ordinated effort can we create a market that is fit for the future, and which maintains consumer protection at its heart. So, whilst we are finally starting to see changes that are opening the door for more first-time buyers, we must remain mindful that demand side interventions alone cannot deliver the desired outcomes. Similar attention must be applied to supply. Government must follow through on delivering its promised long-term housing strategy and support the increase in housing supply.
We need a housing and regulatory environment that serves all homeowners, from first-time buyers to homeownership in retirement.
www. bsa. org. uk