The Evolution of Mortgage Affordability: Regulatory Impact on First-Time Buyers

In recent years, the Intermediary Mortgage Lenders Association (IMLA) has advocated for a reevaluation of mortgage lending regulations, particularly focusing on the constraints imposed by loan-to-income (LTI) limits. 

IMLA's Report

The Intermediary Mortgage Lenders Association (IMLA) is urging the government to reassess the limits on loan-to-income ratios for mortgages. 

Currently, 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. 

According to IMLA, this restriction is hindering first-time buyers from accessing mortgage finance.

Kate Davies, executive director of IMLA, emphasized the need for the government to address these regulatory barriers to homeownership.

She proposed establishing a framework that explicitly considers the interests of future first-time buyers, suggesting that affordability regulations need to be reevaluated. Davies pointed out the discrepancy in the FPC's loan-to-income flow limit compared to the broader affordability regime.

IMLA’s recent report, titled "The mortgage affordability paradox," highlights that over the past four decades, there have been two notable periods of excellent affordability. 

Mortgages Overview

During 1993-2003 and 2013-2022, mortgage payments typically accounted for less than 30% of a first-time buyer’s income. Interestingly, the number of first-time buyers averaged 500,000 annually during the earlier period, dropping to 330,000 during the more recent one.

The report attributes this decline primarily to stricter regulations implemented after the Global Financial Crisis, exacerbated by recent interest rate increases. For instance, first-time buyer numbers fell sharply from 405,000 in 2021 to 257,000 the following year.

Furthermore, the affordability landscape has shifted drastically. In 2021, it was cheaper to buy than to rent across all UK regions, but now this is only true in the North West, Scotland, and Northern Ireland. This change underscores the significant impact of regulatory and economic shifts on housing affordability across the country.

To sum up

As evidenced by IMLA's insights, the evolution of mortgage affordability over the past decades reflects a complex interplay of regulatory interventions and economic conditions.

Moving forward, addressing these regulatory barriers and recalibrating affordability measures could pave the way for a more equitable housing market, ensuring that future generations can attain sustainable homeownership.