Analysis: Economy is set to suffer when market regulations are tightened

IT'S no exaggeration to suggest, as the housing minister did yesterday, that without first-time buyers the Scottish housing sector has a serious crisis on its hands.

The first bit of bad news is that first-time buyer levels are at half the level needed for a healthy housing market.

The second is that, with unemployment rising and regulatory measures threatening to freeze even more people out of the housing market, the outlook for first-time buyers is more bleak than it has been in years.

The proportion of the mortgage market accounted for by first-time buyers recently fell to its lowest level since the credit crunch began three years ago, largely because access to affordable loans remains restricted.

There were signs earlier this summer that lenders were beginning to relax their loan criteria, but it was confirmed this week that they have once again tightened it up.

The average first-time buyer needed a 24 per cent deposit in July, compared with 10 per cent in 2007, and, as Mr Neil indicated, it could become even harder to take that first step on to the property ladder.

The minister warned yesterday that the proposed rules to limit mortgage lending would make matters even worse, pointing to Financial Services Authority discussions regarding a curb on high loan-to-value lending. This has been played down as a serious option by the FSA, which has shifted in favour of a greater emphasis on affordability.

But the threat has not gone away, after the deputy governor of the Bank of England, Charlie Bean, last month appeared to put a lending cap firmly back on the agenda.

He wants mortgage lenders to take an even more conservative approach to lending than they already do and given that the Bank will soon assume responsibility for the regulation of the banking sector, his comments were widely noted. Mr Bean was possibly nodding towards rules being introduced in Sweden next month which will limit new mortgages to a maximum of 85 per cent loan-to-value.

Mortgage experts in the UK almost unanimously agree that such restrictions would raise the barriers facing first-time buyers even higher. That would have damaging implications not only for the wider housing market, but for the wider economy.