A lack of understanding over the costs that can affect the lender’s affordability assessment combined with cost-of-living pressures and uncertain market conditions are causing some to delay their plans, say brokers.
The news follows Nationwide’s survey that revealed 84% of aspiring homeowners said the cost of living had affected their ability to buy their first home, while 20% said they expected to be in at least their 40s before they could get on the property ladder.
Riz Malik, independent financial adviser (IFA) and director of R3 Mortgages, said: “First-time buyers are contending with a huge amount of uncertainty in the market, particularly those in London and the South East, where raising a deposit and mortgage affordability are big issues.
“Some are waiting for prices to go down, while some are still looking for the right stock or for the market to resolve its current issues. There isn’t much confidence in the property chains at the moment. It has been one of the hardest times holding them together.”
‘Cost of living doesn’t help’
The main issue, said Malik, is unrealistic expectations from first-time buyers over what they can afford to buy.
“Their eagerness to get on the housing ladder is so great that they fail to take into account that, not only do they have to be able to comfortably afford the mortgage now, but also in the future,” he added.
Malik said they overlook the impact that their student loan and costs like service charges and ground rent have on their current and future affordability, which derails their plans to get on the ladder straight away.
“The cost of living doesn’t help either; it doesn’t seem to be easing even though inflation is coming down.”
According to Zoopla’s 2024 outlook, despite the affordability challenges facing first-time buyers, they are forecast to be the largest group of buyers in the next two years, accounting for 40% of the market followed by those climbing the ladder at 34%.
Although mortgage rates have stabilised, it remains a tough market for those trying to get a mortgage for the first time.
Emma Jones, adviser and owner of brokerage Alder Rose, said: “We’re seeing first-time buyers who have clean credit but have failed to meet a lender’s credit score to get a high loan-to-value [LTV] mortgage, or those who have failed to pass the affordability test.”
‘Too much spending on takeaways and holidays’
Alder Rose gives advice to borrowers who have been turned down for a mortgage by a mainstream lender such as Halifax or Barclays. Instead, they look for help among specialist lenders who are more lenient towards less-than-perfect circumstances.
“On paper, these first-time buyers should pass the affordability assessment, but when it comes to a thorough check of the bank statements, too much spending on takeaways and holidays results in a decline, which is when it comes to us.”
Jones said they’re also working with applicants who have missed payments on short-term borrowing such as buy now, pay later (BNPL) plans and payday loans.
She added: “We encourage first-time buyers to go away and save for an extra 5% so they can put down a 15% deposit. It makes the transaction easier.”
Jack Tutton, director of SJ Mortgages, said single applicants are having the toughest time getting on the property ladder.
However, in the last six months, he’s seen a shift in the way first-time buyers are approaching the affordability conundrum.
“Borrowers are being more savvy,” he said. “They used to come to you and say, ‘I’ve found a house I want to buy, what’s the maximum loan I can get?’ Now, they’re going through their budgets and deciding how much a month they can spare to pay the mortgage. Then they’re asking how big a mortgage loan that will get them, and from there, they’ll go out house hunting.”
He said he thinks the shift in behaviour has come about since interest rates plateaued. Realising interest rates aren’t about to fall, they are taking a pragmatic view of what they can borrow before they view any homes for sale.
Although most common outgoings have been accounted for in their mortgage budget, Tutton said first-time buyers often forget to account for ground rent and service charges.
