The Intermediary Mortgage Lenders Association (IMLA) has called on the Government to conduct a review into regulatory barriers to first-time ownership.

This follows research by the trade association which has revealed the cumulative shortfall in first-time buyer numbers since the financial crisis had reached 3.1 million by the end of 2023.

Despite strong affordability during the ultra-low interest rate years from 2013 to 2022, first-time buyer numbers failed to pick up to the level that previous trends would have suggested.

IMLA’s latest report revealed that over the last 40 years, two periods have provided excellent affordability, with mortgage repayments taking up less than 30% of a first-time buyer’s income – 1993 to 2003 and 2013 to 2022. In the first period, first-time buyer numbers averaged 500,000 a year. In the second, the figure was just 330,000.

“Homeownership brings a range of invaluable benefits to individuals and their families, not just in terms of the accumulated wealth it confers but the peace of mind afforded by security of tenure,” executive director of IMLA, Kate Davies, commented. “It can also benefit wider society, helping to build settled communities.

“Falling first-time buyer numbers means rising demand in the private rented sector, pushing up the cost of rents and increasing the challenge facing tenants, including growing numbers of older people forced to rent into retirement. This in turn puts greater pressure on the social rented sector, already bursting at the seams.”

IMLA suggested that one possible explanation for the muted resurgence in first-time buyer numbers between 2013 and 2022, despite good affordability, was the wide-ranging regulation that was put in place in response to the financial crisis.

Notably, the group suggested the higher capital requirements on high LTV lending and the Financial Policy Committee (FPC) rule restricting lending at or above 4.5 times income to no more than 15% of lenders’ advances (if they lender more than £100m a year).

The impact of tougher regulation has been compounded since interest rates started rising, with first-time buyer numbers dropping sharply from 405,000 in 2021 to 257,000 last year.

“IMLA believes that Government can help future first-time buyers by examining the regulatory barriers to ownership,” Davies added.

“We believe that it would be beneficial for consumers if government were to establish a framework for regulators where the interests of future first-time buyers are explicitly recognized, with affordability regulations reassessed accordingly.

“Particular attention should be paid to the FPC’s LTI flow limit, under which lenders are restricted to offering no more than 15% of their mortgages at or above 4.5 times income, as this seems at odds with the rest of the affordability regime.”

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