New Study Reveals a Lost Generation of First Time Buyers as Barrier to Home Ownership Continues to Widen
A new report launched today by specialist insurer Genworth Financial, reveals how a generation of aspiring homeowners could be lost, as the barrier to home ownership in the UK continues to widen. The report outlines how the number of 90% LTV mortgages originated, typically associated with first time buyers (FTBs), fell from 245,000 in 2006 to 28,000 in 2009, a decrease of 89%, resulting in approximately 100,000 first time buyers being excluded from the market year on year since 2006.
Increasing limitations on the availability of high loan-to-value (LTV) mortgages are failing first time buyers, for whom owning a property remains a key aspiration and a means to improved status and security; as well as future wealth creation. But experts also warn of the far reaching implications and unintended consequences the situation may have on the UK’s economic recovery and future savings gap.
The Barrier to Home Ownership Report, produced in conjunction with Professor Steve Wilcox, chair of the Centre for Housing Policy at the University of York, provides a comprehensive review of the UK FTB mortgage market landscape, and examines the extent and characteristics of the UK’s wealth barrier that now prevents such significant numbers of younger households getting on the property ladder. The report’s conclusions examine some of the interventions currently being considered by the regulatori, alongside risk management practices, capital relief models and frameworks used in other countries to promote prudent mortgage lending.
Referencing a wide range of industry data including the Regulated Mortgage Survey, the Survey of English Housing, the FSA Mortgage Market Review, analysis by the Council of Mortgage Lenders (CML), and supported by the results of consumer research conducted with over 2,000 potential first time buyers, Professor Wilcox’s report examines the following themes in detail:
The full report is now available at www.genworth.co.uk.
Angel Mas, president of Mortgage Insurance Europe at Genworth Financial, commented: “Home ownership plays an integral role in society and remains a key aspiration for UK consumers. Since the credit crunch, lenders have withdrawn almost all high loan-to-value mortgage products usually associated with first time buyers and as a consequence, the majority of prospective first time buyers have been excluded from the market.
“Not only does this have wide-reaching ramifications for the health of the UK economy as a whole, but the deposit barrier represents a new obstacle to social mobility. Ironically, there has never been a better time to get on the property ladder as interest rates and property prices are at an all time low. Yet the current deposit requirements ensure home ownership is kept firmly out of reach for all but a privileged few. This report examines in detail the disparity between supply and demand and draws on a wide range of industry data.”
Steve Wilcox, of the Centre for Housing Policy, University of York, said: “While the availability of capital for a deposit has been able to ease the affordability requirements for first time buyers in the past, the absence of a deposit was not, in itself, an absolute barrier to home ownership. Now, without some innovation in policies or products, the ‘wealth barrier’ to accessing home ownership is set to become just as important as the income barrier has been in the past.”
Mas concluded: “There appears to be a consensus that public spending cuts alone will not be enough to re-activate the economy. There is a real need for an internationally tested structure in the UK – one that will bring confidence to all stakeholders and one that is easy and fast to implement. This isn’t something that can be invented overnight by governments and hence the need to consider best practices from other markets such as Canada or Italy. A public-private partnership where insurers have a stake in the risk or “skin in the game” would also serve to ensure that the interests of lenders, borrowers and the overall economy are aligned towards sustainable homeownership.
Borrowers with a good credit profiles should never be excluded from finance – even in the bad times. If the demand for high LTV loans can be met, rather than just restricting credit to a privileged few, the benefits would reverberate through the housing market, aiding economic recovery.”
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i Mortgage Market Review: Responsible lending, Financial Services Authority, 2010
ii OnePoll research, July 2010. 2000 first time buyers were surveyed online