Professor Philip Lane:

The reason we have ended up with almost a complete separation in the treatment of first-time buyers and second and subsequent buyers with different loan-to-value levels and exemption levels for loan-to-income is when house prices increase, life becomes more difficult for first-time buyers. They have a higher target price to achieve and it is harder to save for the deposit. For somebody who owns a home, there is an offsetting benefit because he or she is building up equity. When house prices increase, life is more difficult for first-time buyers but there is a build-up of equity for existing owners. We have seen before - and there is global evidence for this - that there is a risk of procyclicality with a boom being amplified by people with equity in their homes deciding they have significant equity built up their homes and using that to take out a buy-to-let mortgage and adding to the pressure in the market. The differential between the first-time buyer and the second-time buyer is based on that. They have different exposure to house prices. The existing owner wins when house prices increase while to some extent the first-time buyer finds it more difficult.