IMLA is now calling on the government to enter into urgent discussions with the mortgage industry to try and address the inability of the current market to meet UK consumer’s home owning ambitions.
In the report, titled (itals)Rebalancing the housing and mortgage markets – critical issues, IMLA said: “The housing and mortgage markets in the UK have undergone radical changes in recent years, in the wake of the international crisis in financial markets.
“New national and international regulatory frameworks for the mortgage markets are now in place, but considerable uncertainties remain about the future scale and structure of those markets and just how far they will differ from the market and regulatory regimes that operated in the last three decades to 2007.
“While there have been a number of government policy initiatives, primarily aimed at easing the market downturn and seeking to promote housing market and economic recovery, there is much less clarity in respect of medium and longer term government housing policies.”
IMLA said it recognised that the impact of the downturn on home buying households has been far less severe than the last downturn at the beginning of the 1990s but that it has concerns that it may be being contained by government initiatives.
IMLA said: “Arrears and possession levels have been contained by the reduction in interest rates, by government action to relax the period of delay before out of work home buyers become eligible for Support with Mortgage Interest (SMI), and forbearance by mortgage lenders - including switching borrowers in difficulties to interest only mortgages.
“There are however longer term issues about the limitations of the ‘safety net’ for home owners that face financial difficulties as a result of unanticipated adverse changes of circumstances.
“There are issues about the long term scope and structure of the SMI scheme, and how this will be related to the new universal credits regime.
“There are related issues about whether, and how, forms of private insurance to protect mortgage payments can be developed to compliment the SMI scheme.”
Following the economic downturn the private rented sector has grown sharply and now comprises some one fifth of the private housing market. This growth has been supported by the emergence of the Buy to Let mortgage market.
However IMLA warns that there is a regulatory imbalance between the regulated home owner mortgage market, and the unregulated buy-to-let mortgage market.
One key feature of that imbalance is that interest only mortgages predominate in the buy-to-let market, while their provision is now tightly regulated in the home owner mortgage market.
IMLA said: “This gives buy-to-let investors a marked competitive advantage over would be first time buyers, who also now face requirements to make substantial deposits in order to secure a mortgage.
“The growth of the private rented sector and the flexibility and diversity it brings to the housing market have been widely welcomed.
“There are, however, questions to be resolved about the desired balance between the home owner and private rented markets, and about how far current arrangements accord with household preferences and aspirations.”
Recent Schemes such as Help to Buy and MIG looked help potential home owners onto the property ladder but IMLA said that the government must still go further.
IMLA said: “While important and on a far more substantial scale than earlier initiatives, these are predominantly short term counter cyclical measures with the objective of promoting economic growth.
“Moreover all these schemes implicitly re-inforce the notion that future entrants to the home owner sector should be required to provide a minimum 5% deposit.
“The consequence of this policy stance is that younger households without access to the capital required for a 5% deposit now have little choice but to rent, even if they have an income to comfortably meet the repayments on a high LTV mortgage.”
IMLA is now calling on the government to address the gaps in its published thinking and unite its ‘disjointed initiatives’ into an overarching housing strategy.
“While there have been a number of government policy initiatives, primarily aimed at easing the market downturn and seeking to promote housing market and economic recovery, there is much less clarity in respect of medium and longer term government housing policies.”
It said the government must now decide on a longer term strategy for home ownership and the extent to which it wishes to continue to support household aspirations towards home ownership.
