First-time buyers have been impacted greatly by rate rises, says UK Finance boss

David Postings, chief executive of UK Finance, said there has been a significant increase in longer-term borrowing.

A typical first-time buyer in 2023 would have needed to stretch their loan out for half a century to achieve the same level of affordability that they would have had across a 30-year mortgage term in 2022, chief executive of UK Finance David Postings has said (Joe Giddens/PA) (PA Archive)

A typical first-time buyer in 2023 would have needed to stretch their loan out for half a century to achieve the same level of affordability that they would have had across a 30-year mortgage term in 2022, the chief executive of finance and banking industry trade association UK Finance has said.

David Postings told an industry gathering in London that: “Affordability is key and after multiple rapid interest rate rises the typical first-time buyer has been impacted greatly.”

He said: “We looked at a typical first time buyer in 2022, which was a relatively stable year, and the average mortgage term was 30 years.

Demand might pick up a little this year but affordability will likely still be stretched until rates start to drop. We are unlikely to see a return to very low interest rates so house prices may stagnate

David Postings, UK Finance

“But we then rolled forward the average change in house prices, mortgage rates and incomes to the middle of 2023. For that buyer to achieve the same affordability, as measured by their mortgage payments compared to income, they would have needed to borrow over a 50-year term.

“As rates rose through 2023 this calculation increased further.

“A 50-year term sits outside any lender’s underwriting criteria and we’re not suggesting we want mortgages of this length. This does, however, demonstrate why we have seen such a significant increase in longer-term borrowing.”

Figures released by UK Finance earlier this week showed that the number of mortgages handed out to first-time buyers last year was the lowest since 2013, down 22.4% compared with 2022.

Mr Postings told the gathering: “Although lending was down last year, there were still 287,000 loans with a value of £58 billion advanced to allow first-time households to buy their own home.”

He continued: “It is hard to predict where the market might go next.

“Demand might pick up a little this year but affordability will likely still be stretched until rates start to drop. We are unlikely to see a return to very low interest rates so house prices may stagnate as incomes gradually rise and equilibrium is reached once more.”

Many lenders have signed up to a mortgage charter, giving borrowers who may be struggling a range of options.

Banks and building societies have been encouraging customers to reach out for help. Simply contacting a mortgage lender to find out what options are available will not affect someone’s credit score.

The squeeze on incomes has seen mortgage arrears rise, but stricter affordability tests have protected lenders and borrowers to a great extent, Mr Postings said.

As a result, arrears remain at low levels when looking back at historical comparisons, he added.

Some 4,620 homes were repossessed last year – and while each case is a personal tragedy, repossession is always a last resort, Mr Postings told the gathering.

We want a mortgage market that supports a wide range of people. The reforms put in place after the financial crisis were designed to ensure firms lend responsibly

Financial Conduct Authority

He said repossessions are at their lowest level, apart from the coronavirus pandemic era, since 1980 – “and the mortgage market is more than double the size it was then”.

Mr Postings also said he wondered whether the “pendulum has swung a little too far” and whether responsible lending rules are preventing some people from buying homes, while also trying to protect them.

He said: “Is this causing lenders to be more risk averse than they could be?

“And what impact is this having on the economy, with lower economic activity resulting from a smaller mortgage market. Whichever party forms the next Government they will have to wrestle with this as they are both looking to economic growth to help provide improved public services.

“Dampening down the mortgage market has a significant impact on that aim.”

A Financial Conduct Authority spokesperson said: “We want a mortgage market that supports a wide range of people. The reforms put in place after the financial crisis were designed to ensure firms lend responsibly.

“These reforms, alongside a significant increase in early, pro-active support for borrowers, have had a positive impact, with fewer mortgage borrowers in arrears than historic levels, even as interest rates, housing prices and the wider cost of living have risen.”