The government prepares a guarantee for 95% loan-to-value borrowers
Making sense of the latest trends in property and economics from around the globe
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Treasury ministers have written to the Financial Conduct Authority requesting “ambitious and rapid” changes to rules limiting how much first-time homebuyers can borrow, according to the Times.
Any overhaul is likely to include a reassessment of stress-testing rules that limit Bank lending at higher loan-to-income ratios. The government also confirmed that it is preparing to introduce a "permanent" mortgage guarantee scheme aimed at borrowers with a 5% deposit.
Bank of England governor Andrew Bailey isn't sold on the idea of loosening the stress tests. Despite raising interest rates from near zero to 5.25%, "we do not have large arrears in the mortgage market," he told MPs in January. "We have not had the housing repossessions that we had if you go back to the financial crisis or the early 1990s. We have not had people having their houses repossessed. I do not think we are creating a legacy of mortgage prisoners."
"Does it restrict entry into the mortgage market? It is an interesting question. We have not seen a decline in first-time buyers in the mortgage market, either as a proportion of the total or in aggregate, but there are people who do come forward and say, “I cannot afford to get into the housing market”.
Affordability
First-time buyers are having an easier time now mortgage rates have come down from their peak. Some 341,068 first-time purchases were made in 2024, up 19% from 2023, according to Halifax/UK Finance figures shared with the FT today. First-time buyers accounted for more than half of all property purchases involving a mortgage.
Mr Bailey rightly told MPs that the deposit is the problem for most buyers, which is why ministers are also bringing forward a guarantee scheme. The average first-time buyer put down a deposit of £61,090 in 2024, about £7,500 more than the previous year, the Halifax figures said. That rises to £125,000 in London.
Home purchasers got more relief when mortgage lenders began cutting rates on Wednesday. That has since continued: Nationwide will cut fixed rates by up to 0.35% this morning.
Treading water
Mortgage rates are unlikely to fall far, but the reductions will add impetus to a market that largely treaded water through January. The new buyer enquiries indicator in the RICs survey, published this week, returned a net balance of zero for the month, which is indicative of a broadly flat trend. That metric has moderated in each of the past five months.
The agreed sales metric hit +3%, which "is also consistent with a more or less static picture," the release said. Near-term sales expectations are a little more positive, returning a net balance of +10%. That rises to +30% over the twelve month time horizon, down from +37% the previous month.
Listings continue to recover. A net balance of +25% of respondents reported an increase in the volume of new properties coming onto the market. This measure has now been in positive territory for nine consecutive months.
Short supply
Investors spent £575m on UK purpose-built student accommodation (PBSA) assets in the final quarter of 2024, taking annual investment to £3.87bn, according to new Knight Frank data.
That's a 14% increase compared to the previous year. “The ongoing gap between supply and demand continues to support the sector, while affordability remains a key challenge for students,” Knight Frank's Katie O’Neill tells the FT.
Standing stock is in particularly short supply, which has bought land deals into focus. Nearly 50% of deals completed in the fourth quarter were development sites, capping a record year for student land sales. Overall, 22 development site sales were completed over the course of the year, accounting for a third of deal volumes.
The private sector continues to play the leading role in providing new accommodation for students, accounting for 81% of all new beds completed last year. Almost 16,400 new PBSA beds were delivered across 63 schemes in 2024, representing a 3% increase in bed spaces delivered compared with the previous year.
In other news...
More than 100 sites across England bid to become ‘new towns’ (FT).