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If you thought London’s house prices were already out of reach for first time buyers, things could get a whole lot worse.
The Building Societies Association reckons that new lending caps brought in by the Bank of England will “seriously affect first time buyers in London and the South East” – and not in a good way.
In a stark warning published today, the chief executive of the BSA, Robin Fieth, argued that a recently-introduced restriction on high loan-to-income lending will mean younger buyers will have to wait much longer to get a mortgage in the country’s housing hotspots.
He said the level of high-to-income lending (whereby a building society or bank gives you a loan that is worth 4.5 per cent or more than your earnings) is “low” at present. However, he still advocates that smaller lenders should be allowed to judge when to stop this lending, which many fear is risky and could sow the seeds for another housing crisis, based on a fixed number of loans rather than a flat percentage. (The BOE, or rather its Financial Policy Committee, has brought in a flat rate of 15 per cent).
It also urging the FPC to introduce measures that would allow it to take a raincheck on this controversial policy in another 18 months, withdrawing it if “market conditions” improve.
Mr Fieth said: “This is the first time that macro-prudential tools have been used to control the housing market and the actual effects are an unknown quantity. Of course, affordability is crucial and banks and building societies should only lend what a customer can reasonably repay. However, our concern is the effect these measures will have on first time buyers in and around the capital.”
Get the lowdown on the intractable problems facing first time buyers all over the country, particularly below the M25, as well as possible solutions for helping young people to save up for a deposit.