One of the main focuses of this paper centres on first-time buyers’ access to the mortgage market, set against a clear decline in homeownership – certainly between the 2001 and 2021 censuses – particularly in terms of the numbers owning their home with a mortgage.
Rethinking risk to support homeownership
Chapter 5 is not just clear about the decline in homeownership but also the increase in private renting and how it is younger people – those aged 18-34 – who have seen a huge increase in this tenure. This has gone up from 10% in 1990 to 33% in 2022/23, while at the same time, the number of those living with their parents has increased from 13% in 2006 to 18% in 2024.
The underlying fundamental of what this means for younger individuals seems clear. They are increasingly likely to be renting or still living at home, and the likelihood of them owning their own home during these formative years of their lives has decreased significantly.
The chapter goes on to review whether ‘rebalancing risk appetite’ for lenders – which we might take to mean allowing lenders to take more risk with, for example, affordability, or indeed shifting the rule to allow a greater amount of their mortgage loan book to be at higher loan-to-income (LTI) ratios, essentially allowing them to offer larger loans to first-time buyers in this case, would be worth the potential harm it could bring.
The changing role of the Bank of Mum and Dad
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It focuses on two of those potential harms in more detail – house price inflation and the increased risk of arrears and possessions – essentially asking the industry to feedback on whether these risks are worth it, in the context of what ‘rebalancing risk appetite’ might deliver, particularly focusing on its ability to help more onto the housing ladder for the first time.
We know that many would-be owners can only make the leap with the help of family support, and up until very recently, those who had small – or indeed no – deposit had a relatively limited array of product choice, and much higher hoops to jump through.
Are lenders a step ahead of the regulator?
You might argue the market has already been shifting in a more ‘rebalancing risk appetite’ itself anyway, and perhaps further FCA intervention isn’t required.
The fact we have seen a growing numbers of high loan-to-value (LTV) mortgages coming to market, more 100% LTV offerings, mortgages that take into account rental payments, and other options, might be construed as a sign in itself that lenders are already willing to look, and take, the perceived extra risk that the FCA suggests might be present here.
The big question is whether the FCA unleashes the shackles even more, of course. Because, as it also recognises, given the current situation, “it is increasingly hard for lower-income consumers and those without family support to get a mortgage”. Ain’t that the truth.
Something that has been self-evident in our market for over a decade and, I might argue, the FCA has been slow to recognise.
Weighing the pros and cons
Without a rebalance, it seems highly unlikely these consumers will ever own their own home, but is this the job of the FCA to deliver? Indeed, is homeownership a right?
If they are currently not a risk worth taking for lenders, should the regulator engineer a position where lenders can take the risk? What might this look like in terms of product type, choice, rate, criteria, etc? Is there a danger that consumers desperate to own, do so at any cost, and find themselves making bad product choices that impact them for many years to come, bringing about the arrears and possession harm the FCA is highlighting?
At the same time, is it fair that these individuals can’t currently own property, particularly if they are renting every month and appear to have the ways and means to service a mortgage just as well as they currently service a rental payment? Would lenders want to move even further from their current position, given there is already movement? I have no doubt that some would, but as mentioned above, what does this look like in terms of a product offering?
There are clearly many questions to be raised, and I suspect there will be many different answers given. For some potential homeowners, a shift in risk appetite from lenders should open the door for them in terms of their ability to buy a home, and they will continue their home owning journey for many years to come with no issues.
For others, we may not be able to say the same thing. It could be a risk too far and they may end up in financial trouble.
Will the regulator, and indeed the government, think that is a risk worth taking? That the former will far outweigh the latter, and that we can all ‘live’ with the greater risk and what it could result in? Or that the risk, and the numbers, is likely to be too great to make the rules more flexible?
It is an interesting conundrum, and one thing is clear: the role of advice and the quality of underwriting experience at lenders is going to be crucial in what consumers actually get out of any decision to allow those lenders to up their appetite for this business.
