Building societies are calling for urgent help for young people who have been priced out of the property market.
Radical action is needed to turn around a slump in the number of people able realise their home owning dream, according to the Building Societies Association.
The total number of buyers with a home loan has fallen by 2 million to 8 million in the past 20 years against the background of spiralling prices and interest rates.
The BSA says first time buyers are facing the biggest struggle to get a foot on the property ladder in 70 years.
Its ‘First Time Buyer’ study calls for a major shake-up of the mortgage market, property tax and planning regime.
This would include allowing more young buyers to take on large mortgages equivalent to borrowing more than 4.5 times their salary.
They are also recommend changes to property taxes to encourage older people to move out of large family properties.
The BSA wants changes to the planning rules to prioritise building homes.
It said: “Becoming a first-time buyer is expensive, possibly the most expensive it has been over last 70 years.
“The cost of buying is a massive barrier to many prospective first-time buyers.
“For example, the typical successful first-time buyer now needs a deposit of around £60,000 across the UK but the average ranges from £27,000 in the North East of England to £144,000 in London – where support from family appears almost essential.
“The sizable deposit barrier has led to the rise of the so-called Bank of Mum and Dad, while successful first-time buyers increasingly need to have two incomes that are higher than the average.
“Meanwhile, those without family help or on single and lower incomes have been excluded from home ownership.’
The BSA said the situation has been made worse because of rising interest rates.
“Our analysis of UK Finance data suggests the average mortgage rate for first-time buyers rose from 2.2 per cent in March 2022 to 5.6 per cent in November 2023,’ it said.
“The typical first-time buyer was paying 16.8 per cent of their gross income on mortgage repayments in March 2022 but by November 2023 the figure had hit 22.5 per cent.”
The report makes a number of recommendations designed to help first time buyers and increase housing supply.
Following the financial crash, City watchdogs introduced rules to put a 15 per cent cap on how many home loans banks can offer at more than 4.5 times a buyer’s salary.
The BSA is calling for a review of the lending rules with a view to allowing more young buyers to take on home loans at more than 4.5 times their salary.
It also recommends replacing stamp duty – the tax on buying a property – with a new system designed to support first time buyers.
The BSA’s recommendation call for planning changes to “prioritise improving the supply of both existing and new homes including increased delivery of affordable homes”.
Head of mortgage and housing policy at the BSA, Paul Broadhead, said: “A properly functioning housing market is dependent on first-time buyers being able to afford their first home … new thinking and radical changes are needed.”
Director of Mortgages and Financial Wellbeing at the Nationwide, Rachael Sinclair, said: “Getting onto the property ladder remains as tough as ever, with our latest research showing that one in five prospective homeowners don’t think they’ll be able to buy until their forties.
“Collaboration is key if we are to resolve the first-time buyer conundrum. Without a collaborative approach, we risk the wheels spinning on the homeownership crisis indefinitely.”
