It’s probably a good thing that U.K. banks have tightened their mortgage requirements, in a bid to reduce the potential for future defaults. The recent financial crisis made it clear that excessively loose lending standards can destroy financial institutions.
However, there’s a downside to stricter eligibility rules — Far fewer people can afford homes given the need for larger initial down payments…
Exclusive research for The Daily Telegraph revealed that more than eight out of 10 first-time buyers only get onto the property ladder because they receive a cash handout from the Bank of Mum and Dad.
It is the highest proportion on record, according to the Council of Mortgage Lenders.
It follows a tightening of lending criteria, with banks demanding deposits of at least 40 per cent to secure the best deals.
When 80% of first time buyers can’t afford homes on their own, it makes you wonder whether prices are still too high, since affordability (property prices relative to locals’ income) is ultimately what drives real estate prices in the long-term.
David Orr, chief executive of the National Housing Federation, said: “Even though price rises look sluggish for the next few years, affordability is not improving for many low-to-middle income households as banks continue to restrict their mortgage lending and house prices remain historically expensive in relation to salaries.
“There’s a very real risk that an entire generation will be locked out of the housing market for the foreseeable future and people will increasingly look to buy or rent an affordable home instead.”
Either an entire generation will be locked out… or prices might have to come down a bit.