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The Building Societies Association (BSA), representing numerous building societies in the UK, has raised concerns that mortgage reforms implemented following the 2008 banking crisis have inadvertently hindered first-time buyers’ access to the housing market.
According to a report commissioned by the BSA, these reforms have overly prioritised financial stability, resulting in a decline in first-time buyer mortgages since the mid-2000s.
The BSA is advocating for a review of affordability and repayment regulations, particularly targeting the 15% cap on home loans offered by lenders, which are worth 4.5 times the borrower’s income. Additionally, they are proposing the introduction of more flexible mortgage products that combine part repayment and part interest-only lending, with terms that could adjust over the loan period.
The suggestion to reintroduce more flexible mortgage products resembles practices prevalent before the 2007-08 financial crisis, where interest-only mortgages were common. These mortgages allowed borrowers to reduce their monthly repayments significantly but faced regulatory crackdowns post-crisis due to concerns about borrowers’ ability to repay the loans.
The BSA acknowledges the importance of maintaining a balance between financial stability and facilitating first-time buyer access to homeownership. They argue that the pendulum has swung too far towards financial stability, leading to exclusion from homeownership for many individuals with single or lower incomes.
However, the BSA also recognizes the risks associated with looser regulations, citing past instances where relaxed rules led to adverse outcomes in the mortgage market. They emphasize the need for an honest debate regarding the trade-offs between financial stability and homeownership access.
Chris Sykes, the technical director of mortgage broker Private Finance, supports the idea of more flexible mortgage options for first-time buyers but highlights potential challenges in demonstrating affordability under such products. He suggests that regulators could work with lenders to address these challenges and ensure responsible lending practices.
Overall, the BSA’s call for a review of mortgage regulations reflects ongoing discussions about how to balance financial stability with the need to support homeownership, particularly for first-time buyers facing affordability challenges in the UK housing market.
