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IMLA criticises government policy for failing to tackle widening housing divide

  • 10/05/2017
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IMLA criticises government policy for failing to tackle widening housing divide
The Intermediary Mortgage Lenders Association (IMLA) has hit out at the government’s Housing White Paper for failing to address the source of housing inequality.

It came as the body published figures showing that almost 42% of all funds spent on residential property in 2016 were cash – a post-recession high and up 12% on the previous year.

The growth noticeably outstripped the increase in mortgage lending and threatens to deepen social divisions in the UK housing market, IMLA warned.

It criticised the Conservative’s Housing White Paper for not focusing enough on increasing housing supply to tackle the problem.

According to IMLA data, £109bn of cash (including the proceeds of existing property sales) was spent in the residential purchases market total of £261bn in 2016.

IMLA said that while lending was up 5% from 2015 and 32% since 2013, the total sum of cash injected into residential property rose significantly faster: 12% year-on-year and 57% over three years.

Growth of £6.8bn in house purchase mortgage lending from 2015 to 2016 was overshadowed by the extra £11.8bn in cash contributions.


Reduced mortgage share

This was the highest cash contribution of the post-credit crunch years, reducing the role of mortgages in funding house purchases even though total lending grew each year from 2013 to 2016

IMLA added: “The growing influence of cash in the house purchase market has potentially negative implications for aspiring homeowners and home-movers who cannot stump up enough funds to add to a mortgage which their salary can support in order to afford a property purchase.”

IMLA executive director Peter Williams warned that “rising house prices and stagnant incomes mean that access to wealth as well as mortgage finance will increasingly separate the haves from the have nots in the property market if the importance of cash continues to grow.

“The recent Housing White Paper was a missed opportunity to take strong action on housing supply, and we must hope that the upcoming election manifestos will be used as an opportunity to put that right,” he added.


Encouraging lending

There was some encouragement where lending was concerned, as IMLA’s fourth annual New Normal report pointed out that three-quarters of the annual growth in house purchase lending came from first-time buyers in 2016, as the number of home-movers fell back.

At the same time, buyer affordability – measured by the proportion of income that the typical home buyer spends on mortgage interest – improved to record levels for those who were able to secure a mortgage thanks to unprecedented low rates.

Williams continued: “The backdrop of a broken housing market is putting growing pressure on lenders to innovate in terms of product design at a time when they have been operating within increasingly tightening regulatory boundaries.

“We are seeing a number of flexible products come to market to help make home-buying more accessible, for example using family guarantors, but there are limits to which flexible lending solutions can compensate for continuing structural flaws in the housing market with all the social implications that entails.

“The shift towards cash is partly a consequence of trying to manage housing demand by restricting mortgage supply, with Financial Policy Committee (FPC) actions in 2014 quickly layered on top of the Mortgage Market Review (MMR) affordability rules. With the market having cooled and interest rate expectations shifted since then, there is a legitimate case for asking whether current restrictions on lending are still appropriate or have become over-zealous,” he added.

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