Does the Mortgage Market Undermine Home Ownership?

by Mark Johnston

Does the Mortgage Market Undermine Home Ownership?

In the wake of the recession there has been a growing appetite for rebuilding the housing and mortgage markets in a way that is sustainable through the economic cycle.

The financial crisis has battered the mortgage market so hard that lending is unlikely to ever return to pre-fallout levels.

At the peak of mortgage lending in 2007, some £360bn gross was lent out.

Peter Williams, executive director at the Intermediary Mortgage Lenders Association (IMLA), has recently said that “the ambition of home ownership has become a key part of our national identity. But  this goal threatens to disappear from view unless we consider what kind of market we want to create for the future”.

It seems then that at the moment the mortgage market is ‘hardwired’ to undermine the UK as a nation of home owners.

The Council of Mortgage Lenders (CML) reported that in April lending to first time buyers fell slightly by 1 per cent when compared to the previous month, but there were still 19,400 loans worth £2.5 billion approved.

This smaller market with fewer transactions and almost certainly less innovation clearly has wide implications for borrowers, brokers and lenders let alone the economy as a whole.

Some industry experts are of the belief that the British consumer is now determined to get on top of their personal debt. Therefore repayments have exceeded borrowing for eight of the past twelve months.

According to recent research by the end of the current decade only around a third of younger households, those aged 25 to 34, are likely to become home owners.

Steve Wilcox, professor at the University of York’s centre for housing policy, argues that “home ownership levels will continue to fall if the direction of market policy and regulation is left unchecked”.

A recent report has highlighted the limitations banks face in typically only being now able to offer mortgage deals to buyers with very high deposits.

This may be due in part to the fact that despite the funding for lending scheme has eased restraints on funding for lenders, new regulatory requirements which are to come in to force shortly will mean that lenders will have to carry out more robust checks on would be borrowers. This then may mean that there will be constrains on the availability of low deposit mortgages in the future.

There is also the fact that property prices in this country are too high, they are completely out of ‘sync’ with ordinary earnings.

There is a widespread belief that it is the shortage of available housing that makes British property so expensive.

Therefore the industry has demanded the government further encourage higher rates of new house building to improve the overall balance in housing supply and demand.

Experts believe that if the government want a more dynamic economy which can adapt robustly to changing circumstances, then you need people and money to be able to move.



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