Mortgage lenders urged to increase their LTV ratios to help solve the housing crisis.
An estimated 90,000 new build homes across the UK remain empty as prospective buyers struggle to build deposits to get on the property ladder, specialist finance lender Atelier has said. Data analysis has shown that homebuyers now need around £70,493 for their deposit on standard loan-to-value (LTV) ratios of 75% with the average house price set at £281,974, as reported in the latest Halifax House Price Index.
This deposit amount, Atelier pointed out, is beyond the reach of many, especially first-time buyers whose budgets have been eroded by inflation, meaning tens of thousands of properties marketed at those looking to buy their first home are left empty.
With the proportion of people who thought mortgage affordability was a barrier to homeownership now at its highest level in 15 years, Atelier is calling on mortgage lenders to increase their LTV ratios to attract first-time buyers away from the rented sector, which is also under enormous pressure. Atelier noted that while government policies, such as the Mortgage Guarantee Scheme, are attempting to plug this deposit shortfall, take-up among lenders remains minimal.
According to the specialist lender, many mortgage loan providers had previously retreated from 95% LTV mortgages, citing the potential for borrowers to fall into negative equity. But these fears are overstated, Atelier pointed out, given more modest falls in UK house prices than originally predicted and recent UK Finance data showing that only 2.5% of mortgages were in arrears and only 0.04% had been repossessed.
Chris Gardner (pictured), joint chief executive at Atelier said "the residential property market has always been an essential driver of the UK economy, so why are there still so many barriers for first-time buyers trying to get on the ladder?
For all of the talk of a restrictive planning system stifling the property market, the real culprit is in fact restrictive mortgage LTVs. As long as they remain low, the pool of property purchasers will be limited.”
The solution is simple, according to Gardner, and it does not involve another waiting for the government to act.
“Higher LTVs from mortgage lenders would quickly place empty new-build properties into the hands of those they were originally built for and unlock the current market stasis,” he said. “While some mortgage lenders, such as Newcastle Building Society, have re-entered the 95% LTV market, recent figures from the FCA show that in the second quarter of 2023, only 4.45% of new mortgages had an LTV ratio of above 90%. “While government support is always the focus of the first-time buyer debate, it is often not enough to meet the needs of first-time buyers who can’t get a foot in the door. For the benefit of everyone, the market needs to lend a helping hand and mortgage lenders are sitting on the solution. We all know that mortgage lending is one of the least risky types of lending. In tough economic conditions, every possible spend is cut before mortgage payments are impacted. Lenders should take action now.”
New build demand hits record low
Buyer demand for homes in England has hit its lowest recorded levels since 2015, according to the latest House Builders’ Survey from the Federation of Master Builders (FMB).
Demand is at its lowest level since 2015, when the survey began recording this data, with an average score of 1.99 out of five. The survey also ranked the planning system as the top major barrier holding back the delivery of new homes at 55%, while 51% of members highlighted issues with mortgage availability.
Lack of available land and material costs were the third and fourth largest barriers.
Brian Berry, chief executive of the FMB, said "the survey shows the housing market for smaller house builders is in an increasingly difficult place. The planning system tops the list of major barriers stopping small builders from delivering new homes. While the impending rise in planning fees may help in the short term to prop up struggling planning teams, there are fundamental issues at play. For small builders the survey is clear that the system is too complex and costly. Communication from local planning authorities is also poor. Without changing this, planning issues are likely to loom large as a barrier for some time. Lack of available land is also frustrating small builders and without proper incentives for local authorities to promote small sites it seems unlikely there will be much change.
The economic landscape is also affecting small builders. Restricted access to mortgages has become the second biggest barrier. This issue has seen a rapid rise over the last two years, reflecting the devastating impact the wider economy can have on the small house builders. With many consumers choosing not to take out mortgages it would appear the market is only getting smaller, resulting in less homes being built.”
Reforms are needed to make it easier for young people to buy a home to restore faith in capitalism, ministers are warned
Radical reforms to make it easier for young people to buy property and company shares must be approved to restore Britain's faith in capitalism, ministers have been warned.
A new report by Policy Exchange said more aspiring homeowners should be able to commission and build their own houses amid the cost-of-living crisis. The influential think tank has also called for the leasehold system to be abolished and for more people to be taught how to invest.
Other reforms proposed by Policy Exchange include creating a new market-led 25-year fixed rate mortgage product to boost home ownership and implementing tax super deduction for employee ownership schemes to give more workers a stake in their companies.
The authors cited polling which suggests that only 13 per cent of under-50s think capitalism is working effectively, and some 67 per cent of Millennials and Generation Zs want to live in a socialist economy.
Senior Tories have praised the proposals as crucial to winning over disillusioned voters ahead of the next general election - especially young people struggling to get on the housing ladder.
Business Secretary Kemi Badenoch said "ownership not only brings material benefits, but imbues a sense of responsibility, of care and of stewardship in those who possess it. It is why, as Business Secretary, I have been proud to champion those who invest in our industries - and to create the conditions for small business owners to thrive. The success of the Conservative Party depends upon us broadening the base of those who feel they have a tangible stake in society. There is a clear moral case that those who work hard have the opportunity to enjoy the fruits of their labours. 'This includes the right to decide how to make use of and enjoy your own property, without undue interference by the state. It is not by redistribution and nationalisation, but by expanding the circle of ownership that we will make our society wealthier, fairer and more inclusive."
Science minister Andrew Griffith added 'people feeling that they have a stake in society and can aspire to own property is fundamental to the long-term success of conservative philosophy. The Conservative Party needs big ideas about what it should do in Government. Perhaps more importantly, it needs a specific pitch to young people about why it should be supportive of our capitalist economic model. Increasingly, younger generations are being denied opportunities in society enjoyed by previous ones, and this is eroding popular support for our way life."
The authors suggest that 'more and more, young people see capitalism as the cause of society's principal problems' rather than a solution.
"f capitalism is to endure, we must create more capitalists - more property owners with a stake in the fortunes of our country' they added. A Department for Levelling Up, Housing and Communities spokesman said: 'Supporting young people to own their own homes is a Government priority, and since 2010 we have helped over 860,000 households to purchase a home through Government backed schemes. We have also laid out an ambitious long-term plan for housing to ensure we deliver the homes that communities across the country want and need."
Government urged to bring back Help to Buy-style incentive
A lawyer has called for Help to Buy to be resurrected in the Autumn Statement.
Paul Sams, head of property at Dutton Gregory Solicitors, said a lack of incentive for first-time buyers has overcrowded the rental market and suggests Chancellor Jeremy Hunt should bring Help to Buy or something similar back.
Sams said “housing is an issue which should be at the forefront of the Government’s agenda and be a key feature in the Autumn Budget. It’s difficult to see if housing will be a problem that will be resolved anytime soon, especially with the recent cabinet reshuffle, and new levelling up and housing ministers being appointed left right and centre. A key incentive which would ultimately have a huge impact on the housing market and introduce some stability, is to bring back Help to Buy, or an incentive which offers a similar amount of support. The Help to Buy scheme was extremely beneficial to first time buyers, housebuilders, and the overall health of the property market. As it was self-funding, it should never have been scrapped.
With a lack of any sort of incentive for first time buyers, this has caused the rental market to become completely oversaturated, with the demand for rental properties completely outweighing the supply. Introducing some sort of interest relief on landlords mortgages would provide many with peace of mind, and would hopefully prevent them from wanting to sell their property portfolios. Currently there are too many landlords wishing to sell, and therefore significantly reducing housing stock for renters. Changes in Stamp Duty Land Tax to boost the market, especially by removing the higher rate taxes for landlords, have not worked. The ways in which the Government could help buy-to-let landlords is by introducing grants to make their properties more energy efficient, or interest relief on landlord’s mortgages.
With the abolishment of Section 21, it would also be valuable for the Government to set money aside to invest into a specific housing court, to speed up the process involved with housing cases.”