"It is essential that Labour unlocks the long-term fixed-rate mortgage market to prevent another 600,000 missing homeowners"
- Arjan Verbeek - Perenna
There are over 600,000 fewer homeowners on the property ladder than there should be were homeownership rates the same as they were in 2010, according to new analysis from Perenna.
This is equivalent to the population of a city the size of Leeds or Liverpool who are missing from owning their own homes.
Digging deeper, there are more than 1.5 million fewer homes which are owned with a mortgage compared to 2010. Of these, 900k now own their home outright, and 600k more are privately renting. For many older borrowers, this is a story of success, as they have managed to pay off their mortgage and now own their home outright. But for many younger households, it’s a case of not being able to buy and continuing to rent instead.
Several factors have contributed to this decline in homeownership. House prices significantly outstrip wage growth and strict loan-to-income limits (LTIs) reducing access to mortgage finance have disproportionately affected young people. There are approximately 380,000 fewer homeowners now aged between 25 to 44 than there would have been if homeownership rates remained the same as in 2010. With this backdrop, Perenna proposes its two major policy demands for the new Labour government.
Embrace long-term fixed-rate mortgages
Remove the LTI cap
Today, the mortgage market is heavily tilted towards short-term fixed-rate products which introduce significant interest rate risk onto borrowers. The mortgage market would benefit from a broader range of mortgage options. By removing the interest rate risk, people could borrow more responsibly, helping first-time buyers into homeownership earlier in their lives.
Starmer’s new government should support innovators and start-ups and encourage the development of longer-term fixed-rate mortgages which would allow people more choice over the level of interest rate risk they are willing to take on and enter homeownership at a much earlier point in life.
Remove the LTI cap for long-term fixed-rate mortgages
The deposit problem in the UK housing market is at least partly an LTI cap problem, which restricts loan amounts often below to what a household can afford on a long-term fixed-rate mortgage. Under current regulations, lenders can usually only provide above 4.5x LTI for approximately 15% of their loan book, and these loans are normally prioritised by larger lenders to borrowers who are already firmly placed on the ladder and are wealthy.
Because long-term fixes protect people from interest rate spikes, people could borrow more than 4.5x income and afford the monthly payments without taking the risk of payment shocks. However, with the current LTI cap, the lending of these products is restricted, limiting first-time buyers from getting into homeownership.
Arjan Verbeek, CEO of Perenna, commented: “There are serious long-term consequences of more and more people and families unable to access homeownership, which will create issues in the future.
“The mortgage market needs new types of products that offer consumers more choice and can responsibly help them into homeownership earlier in life. Our call-to-action outlines clear solutions which offer hope that many people can become homeowners.
“It is essential that Labour unlocks the long-term fixed rate mortgage market to prevent another 600,000 missing homeowners."
