Speaking to an audience of brokers at The Mortgage and Protection Event at The Mere Resort in Cheshire, Richard Donnell, research and insight director, Hometrack, said stressing a mortgage applicant’s income at a rate of 7% was freezing out buyers with a deposit less than 15 to 20% of the property value.
After being the focus of government housing policy in 2013 as Help to Buy schemes opened up equity loan mortgages and high loan-to-value lending, the first-time buyer market has plateaued.
Hometrack’s ongoing research into this market found that first-time buyer transactions had levelled out at around 300,000 in 2016, similar to levels found in 2005 and 2006. “Help to Buy not only helped borrowers onto the property ladder, but it created excitement around homeownership, even if people chose not to use the scheme,” he said. Regulation around affordability has now dampened that enthusiasm, added Donnell.
As part of its analysis, Donnell said Hometrack had looked at the current position of renters and whether they could afford to maintain comparative mortgage payments.
The research swapped rents being paid by tenants for a capital and interest mortgage for the same property at the same price and assessed whether the occupants would still be able to afford to the live in the property. The findings showed the vast majority of people could afford to pay the product interest rate but failed affordability tests when the 7% interest rate stress test was applied.
“Regulation is turning the first-time buyer market into an 85% LTV market,” said Donnell. He added: “This is likely to continue perhaps until equity release becomes more mainstream and money is released by family to pass on to first-time buyers to boost deposits.”