Mortgage rules 'deter first-time buyers'

Tougher regulations on mortgage lending have sharply cut the number of people who can afford to buy their first home, research has found.

The number of first-time buyers unable to purchase homes has reached 1.8m since 2007, according to a report by mortgage insurer Genworth.

It said the limits placed on high loan-to-value mortgages were a key factor in declining rates of home ownership, hitting the 25 to 34-year-old age group hardest.

It warned that the potential withdrawal of the government's Help to Buy scheme would cause construction rates to fall back and worsen the mismatch of supply and demand. Even with Help to Buy, it said, first-time buyer numbers in 2014 would fall 41 per cent short.

Simon Crone, Genworth European vice-president for mortgage insurance, said the crisis concerned both lending to first-time buyers and low rates of house building. Help to Buy, he said, "remains a temporary fix to a problem currently hard-wired into the market. But we must avoid its removal until there is a long-term solution in place."

The report comes amid countervailing figures this week from the Council of Mortgage Lenders, which found loans to first-time buyers totalled £3bn in the second quarter of 2014, up 17 per cent on the same period in 2013.

Acknowledging the rise, Peter Williams, executive director of the Intermediary Mortgage Lenders Association, said there was nonetheless "a real danger" it could be shortlived without robust planning for the ending of Help to Buy.

"The proliferation of new regulations and capital requirements has tightened the market by limiting borrowing options and restricting lenders' ability to serve the full range of creditworthy consumers."

Ray Boulger, senior technical manager at mortgage broker John Charcol, suggested there was a contradiction at the heart of the government's policy on home loans.

"Either the government believes the stricter, and increasing, regulations now in place are necessary to protect the integrity of our banking system - in which case it is difficult to understand why it also believes it is appropriate to introduce schemes designed to get around the problems these cause - or it now recognises the regulations are causing unintended consequences, in which case it should change the regulations."

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