House prices increase by 173% in 20 years; salaries go up by just 19%

Since 1997, house prices have rocketed by 173% while those aged between 25 and 34 have only seen real incomes increase by 19%, stated Financial Conduct Authority (FCA) executive director of strategy and competition Chris Woolard.

Speaking at the UK Finance Annual Mortgage Conference, Woolard highlighted that homeownership for those aged between 25 and 34 was 55% in 1997, while last year it was just 35%, according to the Institute for Fiscal Studies (IFS).

Also commenting on the popularity of longer term mortgages, the FCA director said: “According to our data, whereas in 2005 nearly half of all sales were for 20-25 year mortgages, the figure today is just under a quarter. Instead we’re seeing an upward tick in longer term mortgages – in 2005 just over 2% of mortgage sales were over a 30-35-year term; at the start of this year it was nearly 18%.”

The mortgage market is tremendous in size and worth at least £1trn, and “dominates lending activities in the retail space” Woolard said, adding that it makes up approximately 88% of the major banks’ lending balances.

Given its massive size and central position, the authority noted that it is “crucial” for it to understand the mortgage market in the round; “from market forces and structure, to consumer behaviour and the impact of new entrants.”

Following on from its Mortgage Market Study that commenced in December 2016, the FCA has identified three areas which need improvement; making it easier for borrowers to access suitable, good value products that meet their needs; that competition empowers consumers to make effective choices at every stage of their mortgage lifecycle; and firms to operate with a culture of treating customers fairly.

Mentioning how some homeowners become ‘mortgage prisoners’, Woolard highlighted that the regulator is “challenging” itself to look at improving its regulation so it is not a barrier to customers switching.

“Affordability is integral to our responsible lending rules. And it would not help anyone to switch to a mortgage they cannot afford. But we are open to considering whether we can provide additional flexibility in a way that is in line with our obligations. It cannot make sense to deny a cheaper deal to someone who has maintained a good record with higher payments,” he added.

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