Switched on
Aspiring homeowners today are a different breed to those of the past. For a start they probably don’t walk through your door anymore, preferring to phone you, email or even get in touch through your website.
Secondly, they need significant funds to even get a mortgage and face scrutiny from lenders to check their affordability. This is familiar to you but remember, it’s all new and daunting to a first time buyer, along with the entire home buying process.
However, with the right support from a good intermediary, many prospective buyers can be helped into home ownership.
A recent study by IMLA showed that nearly nine in 10 first time buyers (88%) applying through an intermediary secured a mortgage offer.
Generation rent
Homeownership levels fell from 71% in 2003 to 63% in 2017, according to the latest English Housing Survey. In addition, the Institute of Fiscal Studies recently found that only one in four middle-income young adults own their own home – down from two in three 20 years ago.
This partly reflects changing attitudes to renting, but it’s also simply much harder for younger people to get on the ladder.
As we all know, the biggest hurdle to homeownership is rising house prices. The cost of the average UK home has rocketed from £38,467 in 1986 to £251,679 in 2016 – that’s a 554% rise in 30 years, which is vastly outpacing salary growth and creating ‘generation rent’.
Combined with the post-credit crunch landscape, where large deposits are needed, self-certification is out and MCD rules make affordability criteria tighter than ever, it’s far from easy for first time buyers.
It’s especially frustrating when the cost of servicing a mortgage is currently low, with buying a home £900 a year cheaper than renting one, according to Halifax.
Know your clients
The average first time buyer is now 30 years old, with an income of £40,000, according to UK Finance, and they typically borrow £134,000 on a loan to value (LTV) of 85%.
First time buyers borrow an average of 3.64 times their income, with mortgage repayments averaging 17.3% of gross monthly household income.
That’s the UK-wide stat but, of course, it masks wide regional differences, with first time buyers in London typically paying £409,795, and requiring £106,577 deposits.
Despite considerable challenges, first time buyer business is growing, both in real terms and as a proportion of total mortgage lending.
According to UK Finance, there were 34,800 new first time buyer mortgages in November 2017, some 15.2% more than in the same month a year earlier.
Know your market
As well as knowing your clients, as an intermediary it’s worth updating yourself on what’s available, as this sector of the lending market has flourished in the last five years.
Mortgages at 95% LTV top 300 products in number (up from 253 a year ago), according to Moneyfacts and rates are competitive at an average 4.02% – down from 6.39% 10 years ago. At 90% LTV, rates have actually fallen 12 basis points since last August despite the base rate increase, to 2.21% for two-year fixed 90% LTV mortgages, said the Bank of England.
Parental support is now more important than ever. Last year Legal & General estimated that the Bank of Mum and Dad would lend a staggering £6.5m to mortgage borrowers, making it effectively the 9th biggest lender in the UK.
A swathe of family focussed first time buyer products are now available, from guarantor mortgages to family offset options. Having a good knowledge of what’s available will position you as a trusted expert to your first time buyer clients.
It’s the same with the Government’s Help to Buy Equity Loan scheme and shared ownership initiatives, ensuring you’re able to talk through these schemes and which lenders offer mortgages on them demonstrates your expert knowledge.
A helping hand
The removal of Stamp Duty for the vast majority of FTBs in November may have cut the upfront buying costs but it represents a drop in the ocean compared to deposit, mortgage fees, survey and solicitor’s costs.
Cashback mortgages give buyers an invaluable lump sum to help furnish their new home or simply replenish their rainy-day fund. Last year Moneyfacts noted a 27% boost in the number of cashback deals and Halifax Intermediaries currently offers £1,000 cashback to first time buyers and home movers.
Your first time buyer clients need an expert to help them through the mortgage maze and overcome the multiple hurdles to homebuying.
By understanding both the barriers they face to homeownership and the wide range of options available to help them, you can add value to the advice process and hopefully, gain loyal and happy long-term clients.
For the use of mortgage intermediaries and other professionals only
If you do not have professional experience, you should not rely on the information contained in this communication. If you are a professional and you reproduce any part of the information contained in this communication, to be used with or to advise retail clients, you must ensure it conforms to the Financial Conduct Authority’s advising and selling rules. Halifax is a division of Bank of Scotland plc. Registered in Scotland No. SC327000. Registered Office: The Mound, Edinburgh EH1 1YZ. Bank of Scotland plc is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority under registration number 169628. Information correct at May 2018.
