How would YOU fix the housing market? We need a thirty-year fixed interest rate, says mortgage boss Arjan Verbeek

Whether it’s unaffordable house prices, higher mortgage rates, rising rents or increased homelessness: the housing market seems to be stuck in an endless crisis.

There remains an insatiable appetite to buy real estate. Many of those who do not own property strive and put their savings towards achieving it.

It is a dream that is increasingly out of reach for many, as the chronic shortage of housing causes house prices to rise and rents to rise.

Those who already own tend to want more. Whether that means buying a bigger and better house, buying a holiday home or investing in buy-to-let, the British obsession with acquiring property doesn’t stop at the former.

Owning real estate has become synonymous with both wealth creation and wealth preservation, and as the money continues to flow in, prices continue to rise.

Government interventions often seem to add fuel to the fire. Stamp duty holidays, Help to Buy, Right to Buy and other schemes were aimed at helping more people onto the ladder.

But while many of these initiatives were successful, they also had the effect of further increasing house prices for subsequent initiatives.

Worst of all, homelessness is increasing. According to research by the charity Shelter, more than 300,000 people are homeless in England, many of whom are in temporary accommodation.

In the new series This is Money, we speak to a property expert every week to ask them what’s wrong with the UK housing market – and how they would fix it.

This week we spoke with Arjan Verbeek, founder and CEO of mortgage provider Perenna.

Arjan’s career in financial services has included building multi-billion dollar financing programs for various institutions and has assessed mortgage markets around the world, including Canada, the US, Australia and Denmark.

He has held positions at BNP Paribas and Barclays Capital and was vice president of mortgage risk analysis at Moody’s.

Does Britain have a housing crisis?

Arjan Verbeek answers: Yes. We are in a housing crisis that affects all generations.

Young people are being priced out of home ownership, mortgage prisoners are locked into obscenely high standard variable interest rates (SVRs) and the over-55s face discrimination, often being refused outright mortgages because of their age.

The UK mortgage market is uniquely flawed because it is overly reliant on ‘cheap’ short-term products. This structure prevents individuals of all ages from purchasing the home they want.

In countries such as the Netherlands, Denmark and the US, where long-term mortgages with a fixed interest rate are the norm, this is not the case.

In those countries, borrowers have a wider range of mortgage options, including long-term fixed-rate mortgages that provide complete protection against interest rate shocks.

Rate rises in recent years have exposed the risks associated with short-term fixed rate mortgage products in Britain.

By the end of 2024, more than 1.6 million homeowners will reach the end of their fixed-term contract and significantly increase their monthly repayments due to the flawed design of their mortgage product.

We are trapped in an endless cycle that will continue if we do not fundamentally change our mortgage market.

It is tragic that the average age of starters continues to rise. As a society we cannot accept that.

How does this compare to the past?

These market problems, while exacerbated by recent high interest rates, have been around for some time.

The 2008 global financial crisis forced me to compare and contrast mortgage markets around the world, and I realized that the structure of the mortgage market has a much greater impact on the health and stability of the economy than people realize.

Regulators recognized the risks and implemented protective measures.

However, these actions unintentionally blocked the market. It hasn’t recovered properly since then and has caused the problems we see now.

What do you think was the biggest cause of the housing crisis?

A market dependent on short-term, ‘cheap’ fixed rate mortgages, meaning borrowers are not protected from rising interest rates.

At Perenna we offer borrowers the option to fix the interest on their mortgage for up to 30 years.

Short-term fixed-rate mortgages place a disproportionate burden on consumers, who should not be exposed to interest rate shocks.

The mortgages issued by the traditional major banks are designed to place all the interest rate risk on the consumer.

We don’t think that is right and unfortunately many people today experience the negative consequences.

I’m not sure how these traditional mortgage products comply with consumer rights rules. We hope the Financial Conduct Authority will conduct a thorough investigation into the ‘foreseeable harm’ they cause. The evidence is current and difficult to dispute.

How would you solve the crisis?

A shift to long-term fixed-rate mortgage models This would provide much-needed consumer protection, greater affordability – as borrowers are not stress-tested by interest rate hikes, and most importantly, get the country excited about homeownership again.

Update current regulations on loan-to-income limits (LTIs). Regulations such as loan-income limits prevent lenders from truly supporting first-time buyers.

Lenders can typically only provide mortgages worth more than 4.5 times income to about 15 percent of their customers – and these are often borrowers who are already well established and wealthy.

Although this scheme is well suited for short-term solutions, research shows that people can responsibly borrow more than 4.5x for long-term solutions.

Reform the existing mortgage guarantee scheme Expanding the guarantee to cover the entire loan would significantly reduce the price of higher loan-to-value loans.

This would lead to greater adoption and increase people’s ability to purchase a home, even in tougher economic times.

The government’s plans for a 99 percent mortgage scheme have now been scrapped, which was the right decision in terms of short-term solutions.

But a scheme like this for longer-term fixed-rate mortgages is absolutely what is needed.

While there are certainly risks, such as negative equity, this risk can be mitigated if the guarantee is combined with a long-term fixed-rate mortgage.

Do you think the housing crisis will ever be solved?

If we restructure our mortgage market, I am confident we can solve the housing crisis and create a housing market that is truly affordable and accessible.

One route to achieving this is to increase the availability and choice of long-term fixed rate mortgages, allowing consumers to borrow up to 30 percent more than major lenders, feel confident and secure about their monthly repayments, and have the flexibility have to do this. move or take out a new mortgage if they need to.

I also see that the FCA has a key role to play in ensuring that consumers are offered a wider range of mortgage options, including those that completely eliminate interest rate risk.

Homeowners should not be forced to speculate on the largest debt they have ever taken on due to the limited availability of mortgage products offered by the major lenders.

If we want to see a better future, we need a revolution in the mortgage market. We want people to be able to get on with their lives without having to worry about their mortgage product.

Perhaps this will also help us unleash a productivity revolution.