Opening the door to homeownership, not to risk – Davies

More innovation, higher-loan-to-income (LTI) multiples, higher-loan-to-value (LTV) products and a more flexible approach to affordability have recently been criticised by some commentators as a return to the lending behaviours that contributed to the 2008 financial crisis. But this is not where the UK mortgage market is currently headed.

What we are seeing is a market that has proved its resilience under the toughest stress test since the global financial crisis, and which is now evolving in a measured and responsible way to meet the needs of borrowers, many of whom have been locked out of homeownership for far too long.

The mortgage system has been tested severely over the past two years. Interest rates rose faster and further than at any point in decades and millions of borrowers refinanced from ultra-low fixed rates onto much higher ones. Household budgets were squeezed by inflation approaching double digits and the wider economy remained subdued. Yet throughout this economic pressure, mortgage arrears have continued to fall.

According to IMLA’s own analysis, reported in our New Normal 2026/2027 report, arrears stood at around 0.85% of mortgage accounts at the end of 2025 and are forecast to fall further through 2026 and 2027. That is not the profile of a market behaving recklessly, but rather of a system designed to be cautious… possibly too cautious.

The regulatory bodies have recently begun to view the mortgage market through a slightly different lens, suggesting that overcaution may have run its course. Understandably, industry reactions have been mixed, and the minutiae of suggested changes have quite rightly been hotly debated.

For example, one of the most persistent misunderstandings in the debate preceding the Prudential Regulatory Authority’s (PRA’s) decision to relax the LTI lending cap last year was the assumption that lenders have been operating close to the 15% flow limit on lending at or above 4.5 times income.

In reality, most lenders have historically stayed well below that ceiling. The limit was designed as a backstop, not a target, and in practice, lenders have often applied their own internal brakes long before reaching it.

What’s more, according to IMLA’s Mortgage Affordability Paradox report 2025, there is little evidence that mortgages written at higher income multiples within today’s affordability framework are more likely to default. Risk does not sit neatly at a single LTI multiple, but in poor underwriting, weak affordability checks and misaligned products. Those are some of the failings that led to the financial crisis and that remain firmly off the table today.

Allowing greater flexibility and scope around LTI, within a strong affordability structure, is not a rollback of standards, it’s a recognition that borrower circumstances are more diverse than a blunt multiple can capture.

The mortgage market today looks very different from the one that existed before 2008. Transparency and accountability are a given, capital requirements are stronger and average LTVs across the housing stock are at historical lows.

Recent product innovation at many mortgage lenders reflects that strength. Changes to affordability calculations, greater use of rental payment histories, more nuanced treatment of income and carefully designed higher-LTV products are all examples of lenders responding to borrower needs rather than chasing volume for its own sake.

And let’s not forget that lending standards under the Mortgage Conduct of Business rules remain firmly in place. Full affordability assessments are still required, income and expenditure are still scrutinised and lenders are still accountable for the outcomes their lending produces.

These developments are not encouraging people to overstretch their borrowing, but recognising that many renters are already managing housing costs that in many cases exceed the cost of owning and that too rigid a system can prevent otherwise creditworthy borrowers from making the transition to homeownership.

Help for the ‘lost generation’

Since the financial crisis, an estimated 3.5 million households that would have historically been expected to buy their first home have not done so. They are absent because the hurdles to accessing mortgage finance have been disproportionately high for too many people, or they perceive this to be true and are unaware of the increased flexibility and innovation in the sector.

This lost generation of first-time buyers has paid a price not just financially, but socially and emotionally. Homeownership remains closely linked to long-term financial resilience, security in later life and wellbeing across physical and mental health. It also underpins labour mobility, community stability and wider economic growth.

First-time buyer numbers are, fortunately, picking up. With falling rates, the measured relaxation of affordability and stress tests and product innovation, more than 390,000 people bought their first home in 2025, up around 18% on the previous year. However, this is a far cry from the historical norm. Between 1980 and 2002, the number of mortgages agreed for first-time buyers averaged around 486,000 per year according to the Office for National Statistics (ONS) – which makes some of the recent alarmist commentary all the more misplaced.

The mortgage market is not ‘going mad’, as one national newspaper headline recently suggested, but responding to data, outcomes and experience. After more than a decade defined by restraint, that evolution is long overdue. But change only delivers its full benefit if people know about it. Millions of potential first-time buyers remain on the sidelines, often unaware that affordability approaches have adapted and new options are available.

That creates a shared responsibility: lenders, brokers and government must work together to communicate clearly what has changed, to dispel outdated assumptions and to encourage aspiring buyers to seek advice about their borrowing and home buying options. A market that is safer, more flexible and more resilient than it was a decade ago should not be obscured by old narratives. If we want homeownership to grow responsibly, we need to explain the progress that has already been made.