The financial crisis a decade ago led to a collapse in housebuilding in both the UK and Ireland, with current levels of housebuilding operating at or close to historic lows since 2009-10.
High loan-to-value (LTV) borrowing (95% and above) continues to be largely absent from both markets, especially for first-time buyers. However, there is evidence of loans bunching just under the macro-prudential limits in both the UK and Ireland: around 90% LTV and 3.5 loan-to-income (LTI) in Ireland or 4.5 LTI in the UK.
Despite these challenges, the UK Finance research finds that first-time buyer activity has been growing since 2011 in the UK and 2013 in Ireland.
“First-time buyers (FTBs) remain vital to the health of the wider housing market. As well as continuing to sustain home-ownership, they provide liquidity in the market and enable existing home-owners to move and to create housing chains,” said Mohammad Jamei, senior economist at UK Finance and co-author of the report.
Homeownership rates have fallen in recent years as a growing proportion of households remain in private rented accommodation for longer. However, the population profiles in the two countries have diverged for younger age groups.
The UK and Ireland have experienced very different changes in population since the financial crisis – while the number of 18-to-29-year-olds has grown in the UK over the past decade, it has fallen in Ireland.
“These trends largely reflect strong net inward migration into the UK and significant net emigration from Ireland,” the report stated. As a result, housing demand in Ireland is likely to be lower than in the UK, as this age cohort are the key household formation group.
Meanwhile, the share of the older population has been growing and is expected to continue growing in both countries, which means the pattern of homeownership will move towards older age groups.
Major life events
The paper, UK and Irish Housing Markets: A First-Time Buyer Perspective, which was co-written by Jamei and Anthony O’Brien of the Banking and Payments Federation Ireland, also found that major life events which prompt household formation – especially marriage and childbirth – were occurring later in life.
“Recent trends in first-time buyer mortgage lending reflect general demographic factors affecting the scale and nature of housing demand and the failure of housing supply to keep up with demand,” said the report.
The first-time buyer share of house purchases in Ireland fell below 35% in 2005 but jumped to more than half from 2009, partly due to the sharp fall in buy-to-let (BTL) activity. In the UK, FTBs accounted for less than 35% of purchases until 2012, but by 2016 they accounted for more than 40% of new mortgaged house purchases.
According to UK Finance, the trends reflect changing lender risk appetites and practices, tighter mortgage regulation to reduce demand and limit lenders’ exposure to losses, and government housing schemes to support supply.
Creating a favourable environment for FTBs must mean also addressing the needs of other residential property buyers and households in general, the report concluded.