Putting out the fire with gasoline

Emiled in by Lola, from FT Adviser:

The mortgage market needs more flexibility to help young people onto the property ladder, the Financial Conduct Authority has stated.

In its discussion paper on intergenerational differences, published yesterday (May 2), the regulator stated the working ways of ‘millennials’ — those between 23 and 38 years old — meant fewer young people were able to prove to lenders that they could afford a mortgage policy. It said those with less reliable and stable sources of income, such as self-employment, zero-hour contracts or agency work, found it harder to pass standard affordability assessments.

The FCA also pointed out that there was more movement between the workplace and further education as young people tended to join the labour market, go back into education, then enter the labour market again later. This required greater flexibility in the mortgage space, the City watchdog stated.

The FCA also noted that a steep rise in house prices compared to wages had stifled the younger generation’s ability to buy a house. According to the ONS, house prices in real terms have increased by 259 per cent in the past 30 years, compared to a 68 per cent rise in wages.

The FCA stated schemes such as Help-to-Buy had gone some way to help young people meet the cost but stressed many other consumers turned to the ‘bank of mum and dad’ or other family members, such as grandparents, to raise the funds. Last week, a House of Lords committee stated younger generations needed more support from older generations to afford property than ever before and urged the watchdog to ensure the market allowed for innovation.

In today’s report, the FCA encouraged more innovation in later life lending so older generations can benefit from products that meet their needs to maintain living standards once retired as well as provide younger family members to purchase a house.

By some bizarre circular logic, they recommend exactly the opposite of what it would take to 'help people onto the housing ladder', which is to restrict mortgage lending to two-and-a-half times earnings, or twice earnings for a couple. In the good old days, banks and building societies would not take rental income into account, which is why BTL lending was unheard of.

But this is traditional as we approach another resulting peak in house prices (actually land prices). It'll all go *pop* again in 2025-26.