First time buyers are your bread and butter and it’s vital you understand them.
While they are by no means all the same, many of them will be millennials – born between 1980 and 2000.
They’re likely to be digital natives, face the obstacle of high house prices, and have spent adulthood in a record-low interest rate environment.
The average first time buyer is 30 years old, earns £40,000 a year and typically borrows £134,000 at 85% loan to value (LTV), according to UK Finance.
They take average mortgage terms of 27 years, with 22% of opting for terms of 31 to 35 years, up from 11% in 2007, according to advisers L&C.
Despite facing huge barriers to homeownership, first time buyer business has been strong in recent years. Millennials have found new ways to get onto the ladder, despite the challenges posed by the current market.
Fuelling the housing market
The number of first time buyers reached an estimated 162,704 in the first six months of 2017, only 15% below the peak of the last boom in 2006, according to the Halifax.
A decade ago, just over a third (36%) of all house purchases financed by a mortgage were made by first time buyers. In 2017, this had risen to almost half (47%).
Supported by the Bank of Mum and Dad and Help to Buy, first time buyers have overcome significant hurdles and they help keep the market moving.
However they are still less likely to be homeowners than their parents. According to the Institute for Fiscal Studies, in 1996, 65% of 25 to 34-year-olds on middle incomes owned a home.
By 2016, just 27% of this group were homeowners.
That’s not surprising when average house prices are a staggering 152% higher while the incomes of those aged 25-34 are only up by 22%.
According to property service giant CBRE, 80% of millennials reckon their wages are not keeping pace with property prices.
How can you help?
Intermediaries can be the voice of experience and authority for first time buyer clients, showing them there are solutions to the significant homeowning challenge.
1. Do they know they can now buy a home with just 5% upfront? Rates have come down to an average 4.02% on 95% LTV mortgages as competition has increased to over 300 deals (Moneyfacts).
2. Have they considered Help to Buy if they are looking at new build? It’s well worth knowing the ins and outs of the scheme and understanding which lenders offer Help to Buy.
3. Could they benefit from a cashback mortgage? With Halifax Intermediaries offering cashback of £1,000, first time buyers could benefit from this welcome boost after completion of their purchase.
4. Explain the different ways their parents could help. If they can’t give them funds, they may still be able to guarantee a portion of the mortgage.
5. Remember that first time buyers are tech-savvy. It’s not that millennials don’t value face-to-face advice as experience and knowledge is still important to those embarking on what is a complex process, even if they want some of the process to be completed digitally. Are you ready for that challenge?
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.