I am not sure what age you have to be before it’s okay to pass comment on our policemen looking younger than they used to, or express concern over our children’s ability to afford to buy their first home, but I have most certainly reached that age. Like many “middle aged” parents, I have grown up knowing little else but the spectre of rising house prices (albeit with a couple of significant price “crashes” along the way), and aligned myself with the notion that house price inflation has been, and indeed still is, largely a good thing.
However, whilst (like many others of my generation) I have directly benefited from this inflationary environment, it would now appear that whilst we once considered property ownership as “our right”, our children now quite understandably regard it to be more of a privilege.
The term “Housing Crisis” gets much airtime in the media, but how have we arrived at this juncture? And more importantly, perhaps, what can we and/or the government do about it? Well, I think the causes are many fold, but a general lack of public & private house building over many years, and easy access to “buy to let” mortgage money – have no doubt contributed to our present situation.
Which leaves us with the question of “What can we do about it?”, Well, the answer to this question may also have many answers, but we can make a start by both the government and the Bank of England dealing with the question of “Affordability”.
For those that don’t know, the mortgage affordability rules were significantly tightened in 2008, largely in response to our banks agreeing too many “subprime” mortgages with people who struggled to afford them. However, the Council of Mortgage Lenders (CML) has just recently urged the Bank of England to ease its affordability criteria, after their analysis revealed that they could well be holding back buying activity here in the UK.
The CML has called on the Financial Policy Committee (FPC) to reassess the 3% affordability stress test applied to mortgage borrowers, which it believes is having an adverse effect on the housing market. In a recent news and views piece, titled “Macro-prudential regulation: have we got the balance right?” the CML stated, “There is a risk of a net adverse effect on the market, and rather than hardwire requirements, the FPC should be looking to soften the impact”.
So in simple terms, with predicted house purchase approvals significantly down, the CML believes that the Bank of England’s measures have made it harder for older borrowers and for households with single incomes in particular to obtain mortgages, stating “the FPC may be limiting credit risk at the expense of shrinking overall activity and contributing to a less diverse cohort of borrowers”.
However, in my view this need not facilitate a return to poor lending, as increased flexibility in lending criteria when reviewing an applicant’s ability to afford a mortgage would indeed be a step in the right direction. A good example of this would be to take into account not just the applicants ability to repay a mortgage (based upon their income), but their past track record when paying their rent (as monthly rent payments can often be higher than mortgage payments).
Indeed, a recent parliamentary petition started by a disgruntled member of the public, Jamie Pogson (a tenant himself) sought national support for government to debate the issue and attracted over 74,000 signatures (at the last count). Mr Pogson was quoted as saying “Since living on my own I have paid over £70,000 in rent on time, yet still struggle to get a mortgage. Unless you’re getting handouts, are wealthy or in receipt of an inheritance it’s almost impossible” – and clearly the CML are starting to reach the same conclusion.
It is perfectly clear that to solve the housing crisis we need to build more houses for people to live in – end of. But, we also have to accept that mortgage lending rules need to be kept under review, and should be flexible enough to not exclude large swathes of the working population merely because they have been allowed to become out of step with the world as it is today.
Sure, I agree that we don’t want to go back to the boom and bust lending of the past, but mortgage affordability rules need to reflect modern day scenario’s such as short-term employment contracts , downsizing in retirement (whilst retaining a mortgage), and most crucially, not exclude a younger generation all together who simply share the same dream of owning their own home, as we did all those years ago.