New research from the Intermediary Mortgage Lenders Association reveals that around 3.5m households who might have expected to buy a home since the financial crisis are still waiting to enter the market — held back by unnecessary barriers rather than the ability to meet mortgage payments.

In 2021, IMLA first published a report called The Mortgage Affordability Paradox, which examined the conundrum that, despite years of ultra-low interest rates, first-time buyer numbers had failed to recover since the financial crisis. It concluded at the time that, based on propensity to buy versus actual property purchase figures, 2.7m potential purchasers who would have been expected to buy their first home had not done so.

The latest update of the report reveals that figure has now grown to 3.5m, and concludes that overly stringent regulation is a major contributing factor.

The research observes that despite the higher mortgage rate environment post-Truss, 330,000 first-time buyers got on the ladder last year. This figure is 15% higher than the long-term average of the past 17 years and clearly demonstrates supressed demand.

Kate Davies, executive director of IMLA, said: “Our research backs up several previous studies which conclude that far more people could reasonably afford to buy homes and comfortably service a mortgage than current regulations and attitude to risk allow.

“Clearly, more action is needed to help first-time buyers. In particular, the LTI flow limit restricting how many mortgages lenders can offer at higher loan-to-income levels is blocking many sensible borrowers from buying their first home.

“The government’s promise to reduce financial services red tape is welcome, and we await the outcome of the FCA’s Mortgage Rule Review with interest. But we also need to change the narrative which tells aspiring first-time buyers that homes are unaffordable.

“Many lenders are innovating with longer mortgage terms, extended income multiples and higher loan-to-value products. Now we need the government and regulators to follow through on the necessary rule changes to really move the dial.

“First-time buyers are the lifeblood of a healthy housing market, and homeownership confers a range of benefits on the population, from security to improved mental and physical wellbeing, not to mention enormous long term financial benefits. An earlier IMLA study found that someone buying a home, initially with a 95% LTV mortgage could be £352,000 better off over 30 years than someone who continues to rent privately.

“We need to focus on unlocking the huge pent-up demand illustrated by this report by making it easier for people to take that first step onto the property ladder, and broadcasting the message that, contrary to common perception, millions more can afford to buy their own home.”