The Intermediary Mortgage Lenders Association (IMLA) is urging the government to assess the impact of post-financial crisis regulatory changes and consider easing these restrictions to help first time homebuyers lead the economic recovery in the wake of the COVID-19 pandemic.

In a new report from the trade body (First time buyers: is the growth sustainable?), IMLA suggests current stress testing measures and controls on the proportion of higher loan to income (LTI) lending are preventing a large pool of potential buyers from entering owner-occupation, despite being otherwise able to meet the average repayment costs of a mortgage.

IMLA estimates that the sharp contraction in the number of first time buyers after the financial crisis in 2008 has created a cumulative shortfall of 2.7 million young households which, based on demographic trends, could have otherwise been expected to buy a home.

According to IMLA, there should be 500,000 first time buyers a year in the UK – almost 150,000 more than the actual figure at the end of 2019 (352,000), despite a resurgence in the market since 2008.

This large pool of potential first time buyers – along with more affordable mortgages, due to low interest rates, and increased appetite from lenders to support this group – suggests the long-term outlook for the market is positive, but government will need to examine the regulatory barriers that may be restricting the number of aspiring first time buyers planning to step onto the housing ladder.

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.”

IMLA also suggests that that now is the time for the industry and government to work together to find a successful long-term replacement for the Help to Buy scheme, which is due to be restricted to first-time buyers from 2021 and ended completely in 2023.

Given the disruption caused to construction and borrowers’ ability to move into new homes in the first half of this year, an extension to the current phase of the scheme could also help to maximise take-up before it is withdrawn.

More than 260,000 properties have been purchased using the scheme since its launch in April 2013.

Read the full report.