Housing policy needs overhaul: IMLA

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Government housing policy needs overhauling to meet homeownership targets, according to a new report by the Intermediary Mortgage Lenders Association.

The trade body says that record mortgage affordability is keeping the housing market afloat, and that mortgage lending will continue rising in 2016 and 2017.

IMLA says there will be a marked rise in lending for house purchases by owner-occupiers, from around £142bn in 2015 to £155bn in 2016 and £169bn in 2017.

The trade body says that 2015 mortgage affordability has hit its highest level ever, with buyers spending a record low 8.6 per cent of their income on interest by Q3 2015.

Even first time buyers only spent 9.7 per cent of their income on interest by November 2015, according to IMLA.

IMLA says February 2015 saw the average 2-year fixed rate at 75 per cent LTV fall below 2 per cent for the first time.

By October the average 2-year fixed rate at 90 per cent LTV slipped below 3 per cent for the first time.

IMLA’s research shows that as a result of this increased affordability, first time buyer mortgage repayments are lower than average rents in every region of Britain.

However, this is not yet being translated into the desired increase in homeownership – with factors including deposit affordability issues and tighter lending criteria also having an effect.

The findings are published in the IMLA report ‘The new normal prospects for 2016: is the march back to a sustainable market on track?’

The trade body says that last year saw high LTV loans become much more affordable, with those borrowers opting for higher LTV options facing a smaller marginal cost for borrowing between 75-90 per cent and between 75-95 per cent.

IMLA’s analysis finds the implied marginal cost of borrowing between 75 per cent and 90 per cent LTV, which was as high as 21.3 per cent in mid-2010, had fallen to 12.9 per cent by the end of 2014 and was only 7.8 per cent by December 2015.

However, improving affordability of higher LTV loans in 2015 did not spark a rise in aggregate high LTV lending or the number of first time buyers, which fell back slightly in the year to November 2015 compared to the same period of 2014.

Deposit affordability issues and tighter lending criteria mean that not all buyers can access the deals available, even though high LTV loan repayments are now more affordable than ever, IMLA says.

IMLA is concerned that the government’s decision to terminate the Help to Buy mortgage guarantee scheme at the end of the year could make it harder for first time buyers, as it may reverse the recent improvements in high LTV loan pricing.

IMLA executive director Peter Williams says: “Overall lending is steadily improving but there is still a disconnect in the housing market that needs to be fixed if we are to notably improve homeownership levels.

“Mortgage repayments are more affordable than ever, but the number of people moving into owner-occupation has remained fairly flat – even though paying down a mortgage is now cheaper than paying rent in every region of the UK.

“This points to a problem that is not being adequately addressed – even though there are now many more high LTV deals on offer, saving even a 5 per cent deposit can be a struggle as house prices have risen relative to incomes. This, combined with tighter lending criteria, is preventing any real recovery in homeownership levels.

“The winding up of the Help to Buy mortgage guarantee scheme at the end of this year could remove the buoyancy aid that is record affordability. Great strides were made in 2015 to drastically reduce the price of high LTV loans, but without a form of guarantee in place, lender appetite could sink. The latest BCBS proposals calling for tighter capital requirements could also dampen competition between lenders.”