First time buyers have to leap over some huge hurdles to buy a property and it comes as no surprise that today’s younger adults are less likely to own their home than their parents’ generation.
In fact, the number of 20 to 34 year olds living with their parents rocketed from 2.7 million in 1996 to 3.3 million in 2013 and has since remained around 3.4 million, according to the Office for National Statistics. The percentage living with their parents has risen from 21% in 1996 to 26% in 2017.
One of the biggest hurdles is house prices, which have risen a massive 554% in the last 30 years, says Halifax.
The average income of first-time buyers is now £41,500 according to UK Finance, but in some areas of the UK, you need to earn even more, or have a large deposit, to get on the ladder.
No deposit, no deal
According to Halifax, first time buyers in London, put down an average of £112,604 while in Northern Ireland the typical deposit is £16,814, so intermediaries face very different first time buyer client challenges depending on their geographical location.
They may only need to save 5% upfront but that can still be a huge sum in London and the South East.
Plus, they still need to demonstrate affordability. More robust lending criteria mean the numbers don’t always stack up without a bigger upfront deposit.
As a result, the average first time buyer deposit has doubled over the last decade from £17,740 to £33,339.
As you know, outgoings are reviewed for affordability but this is something your first time buyer clients may not be aware of. It’s always worth highlighting to your clients from the off the importance of having control over their monthly budget.
Be positive about their options but also manage their borrowing expectations, so they set out with a realistic approach.
Many first time buyers already recognise these challenges. Halifax found that they think the biggest barriers to buying are job security (65%), saving a deposit (58%), household finances (31%) and availability of mortgages (31%).
But it’s not all bad news.
Reasons to be cheerful
Despite significant barriers, first time buyers are still buying – in growing numbers.
The number of first time buyers reached 359,000 in 2017, after six years of increases. This is a rise of 87% compared to an all-time low of 192,300 in 2008 and first time buyers now account for half of all house purchases with a mortgage.
Government support, low mortgage rates and high levels of employment have all supported them, in addition to the scrapping of Stamp Duty for the vast majority last year.
The intermediary boost
Intermediaries also play a key role in helping first time buyers by finding them the best deal and, importantly, preparing their application so it goes through smoothly first time.
According to the Intermediary Mortgage Lenders Association, three quarters of first time buyers’ mortgage applications via intermediaries resulted in a completion during the last quarter of 2017. This compares with just over half (53%) a year earlier, as first time buyers benefitted more than any other customer group from improving access to mortgage finance during 2017.
Lenders are helping too, remaining competitive at higher LTVs, designing innovative new products to support first time buyers, such as Halifax Intermediaries’ £1,000 cashback deal, Help to Buy, Shared Equity / Shared Ownership and longer terms to ease affordability constraints.
According to the latest figures from the Financial Conduct Authority, first-time buyers have the longest average mortgage terms of all types of borrowers.
The regulator noted that, in 2016, 62% of first time buyer mortgages had a term longer than 25 years and 34% were longer than 30 years. The most common mortgage term for first time buyers is now 35 years.
There’s also Help to Buy, the government scheme assisting those purchasing a new build home to get on the ladder with 5% upfront. With over 20 lenders offering over 250 Help to Buy mortgages (according to Moneyfacts) there is plenty of choice.
The housing market needs first time buyers to provide liquidity. They’re the first link in the housing chain, enabling second steppers to trade up and keeping the market moving.
They’ve increased in number over the last few years, but sustaining this growth is crucial, in spite of Brexit, wider economic and political uncertainty, and the impact of the end of Help to Buy in 2021 in the new build market.
A greater choice of higher LTV mortgages at competitive rates is one way to do it, and family support, whether through a direct cash contribution or a guarantee is an increasingly popular approach, along with longer terms.
Boosting supply is the other side of the coin and the government has pledged to increase new home building to 300,000 a year on average by the mid-2020s.
Whether or not those levels are reached, first time buyers will remain a vital part of your client mix and many rely of the experience, knowledge and independence that intermediaries can offer.
By recognising that this sector is more complex now than ever before and keeping up with changing trends for first time buyers, you can help them onto the ladder and gain a satisfied long-term client.
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 June 2018.