UK property market needs 'radical changes', building societies say

A new report has called for a policy and regulatory overhaul to help prospective first-time buyers get onto the property ladder.

High house prices and mortgage rates, coupled with high rental costs and household bills, mean that many younger people face huge challenges in the current housing market.

Building societies have the potential to increase lending to first-time buyers but are limited by regulations, the report from the Building Societies Association (BSA) said.

Affordability challenges

First-time buyers face affordability challenges both in terms of the cost of buying a home (raising a deposit) and the cost of owning a home (meeting monthly mortgage payments).

The ability to become a first-time buyer is increasingly dependent on the so-called Bank of Mum and Dad, the BSA report found. At the same time, successful first-time buyers increasingly need to have two incomes that are higher than the average.

As a result, those without family help, and those who are are single or on lower incomes, are unable to move out of the rented sector.

A recent YouGov survey for the BSA showed an increase in the proportion of people that want to buy their own home but don't think they will be able to -- from 25% in March 2020 to 32% in March 2024.

In 2023, the number of mortgaged first-time buyers fell by 22.4% compared with the previous year, according to data from UK Finance.

The sizeable deposit generally required to get on the property ladder has been a barrier to homeownership for some time. However, interest rate rises to the current 15-year high of 5.25% have led to affordability of mortgage repayments being cited as the biggest challenge for would-be first-time buyers.

Unless mortgage rates decrease or house prices ease further, successful first-time buyers will have to overcome both of these barriers to achieve their aspirations for owning a home.

Social benefits of higher homeownership

Since the financial crisis, the pendulum has swung towards a stricter regulatory environment rather than towards the social benefits of higher rates of homeownership. This should be reviewed, the BSA argued, in order to increase the availability of 95% loan-to-value mortgages.

The report also called for more flexibility in the cap on high loan-to-income lending. And it said that a review of the pre- and post-retirement mortgage market would help ensure lending regulations better reflect the increase in longer mortgage terms and the ageing population.

The BSA urged the UK government to work with lenders, the wider housing market industry and the public, with the goal of making homes more affordable, more available and more appropriate to the needs of those living in them.

An independent review should set out a long-term strategy to increase the number of first-time buyers, both now and in the future, the industry group said.

'New thinking and radical changes'

"Becoming a first-time buyer is possibly the most expensive it has been over at least the last 70 years, but a properly functioning housing market is dependent on first-time buyers being able to afford their first home," explained Paul Broadhead, head of Mortgage and Housing Policy at the BSA.

Broadhead added that although building societies are offering tailored solutions within the current regulatory framework, "new thinking and radical changes" are required.

"There is no silver bullet to increasing first-time homebuyers and it won't be possible to help everyone who wants to become a homeowner in the current high price-to-income housing market. But there are many things that can help to fix the broken housing market. That starts with changes to regulations and support schemes that not only help today's first-time buyers, but don't fail future generations."