The latest report from the Building Societies Association (BSA) estimated that around 7.2 million individuals or couples would have been expected to buy their first home since 2006.
However, only five million have done so during that period, meaning there is a 2.2 million first-time buyer shortfall in the market.
The BSA explained that there was a “double affordability challenge”, with high house prices and the end of record-low mortgage rates limiting first-time buyers’ ability to buy a home.
While mortgage rates are improving and further base rate cuts are expected this year, which will have a knock-on effect on swap rates, affordability is still cited by first-time buyers as the biggest barrier to buying a home, at 65%.
Around 62% of first-time buyers pointed to saving a deposit as the biggest barrier.
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The BSA said first-time buyers who did get onto the property ladder are stretching themselves, using high-loan-to-income (LTI) and loan-to-value (LTV) mortgages to overcome the deposit challenge.
Selecting a higher monthly repayment, backed by wage growth, is expected to be a significant factor in allowing more first-time buyers to get on the property ladder.
The report estimated that mortgage repayments as a proportion of income for new first-time buyers are around 22%, which is a rise from 18% in 2020.
‘Biggest challenge’ is for younger and lower-income FTBs
The BSA said the “biggest challenge” to boosting first-time buyer numbers was allowing “younger and lower-income borrowers to have an opportunity to buy their own home”.
The report said many are “stuck in the private rented sector”, where rental payments are a larger proportion of income. This “severely limits” their ability to save for a deposit.
It stated that high-LTV mortgages can be found but are “not a one-stop solution for all potential first-time buyers” and product availability was more “limited”.
Solutions need to help FTBs who missed out
The report said the “missing millions” in the aftermath of the financial crisis was split across all age groups, but in recent years, missing first-time buyers have been concentrated in the younger bracket, especially those under 30.
Consequently, initiatives that want to boost first-time buyers should focus on younger borrowers and those who missed out on getting on the property ladder at a younger age.
The BSA said a “clear government long-term strategy aimed at supporting not only today’s first-time homebuyers but also the prospects for future generations is required”.
The trade body urged the government to “work collaboratively” with lenders, the wider housing market and the public, with a focus on making homes more affordable, available and appropriate to people’s needs.
The BSA said the sole focus on “demand-side interventions” needed to change, with solutions on the supply-side as well.
Regulatory changes will also help more first-time buyers, such as more flexibility to lenders so they could increase the high-LTV mortgages available and a review of the cap on high-LTI lending.
Missing FTB figure is ‘shocking’
Paul Broadhead, head of mortgage and housing policy at the BSA, said he was “disappointed that 12 months on from our first report, which highlighted the struggles faced by first-time buyers and the potential roadmap for change, the barriers to homeownership remain the same today”.
He continued: “It’s shocking that 2.2 million first-time buyers who would have reasonably expected to buy their own home have failed to do so since the financial crisis. And every day that passes without real action the number of potential lifetime renters is growing.
“We know that there is no single solution for all first-time buyers, and not all aspiring homeowners will be able to achieve their dream whilst the double affordability challenge of the high cost of buying and high cost of owning a home remains. However, our report outlines several tangible actions that can be implemented to help fix the broken housing market and to support the next generation of homeowners.”
