A report from the Institute of Fiscal Studies (IFS) looking into the role of intergenerational money transfers, homeownership and wealth inequalities found 80 per cent of financial help for first-time buyers came from parents, while seven per cent was from grandparents.
Overall, a quarter of people getting onto the property ladder had financial help.
The first-time buyers received £25,000 on average and had deposits of £55,000. The IFS said this support had “potentially very high effective returns in recent years” because it helped to bring down the interest rate on the mortgage with a lower loan to value (LTV).
It said an additional £25,000 being used to raise a deposit of 25 per cent instead of 10 per cent would have reduced the repayments on a five-year fix taken out in 2018 by £8,500. The IFS said this was compared to a return of £850 if the money had been put into a cash ISA. It said over the period observed this was also shown to be better than investing in the stock market.
The report said this could have an effect on wealth accumulation.
The IFS also found that receiving financial help was not necessarily responsible for homeownership gaps as some people were already able to afford the house they bought or a cheaper property. The support allowed buyers to put down a larger deposit, buy a more expensive home, or be less “aggressive” with saving.
Overall, people tended to use the money received to put down a larger deposit.
Impact on affordability for first-time buyers
Some 34 per cent of first-time buyers in their 30s who got help could already afford the house they went on to buy, compared with 14 per cent in their 20s. People in their 30s were found to be less likely to receive support and it typically was not the reason they were able to purchase a home.
The data showed that 46 per cent of first-time buyers in their 20s were not able to afford their home without financial aid.
For two-thirds of those unable to buy a home without help due to the deposit, every £1,000 they received increased the value of the property they could purchase by £10,000.
The parental effect
People whose parents are university-educated and homeowners themselves were more likely to get support, accounting for nearly half of first-time buyers in this cohort. They received £35,000 on average.
Among people whose parents are renters, 29 per cent received financial assistance to buy their first home with an average of £11,000.
It said homeownership rates had “declined dramatically in decades” and this was more prevalent in high prices areas as well as among people whose parents were not homeowners.
Between 2009 and 2019, the homeownership rate among people aged between 25 and 39 fell from 55 per cent to 43 per cent.
The children of homeowners are more than twice as likely to be homeowners than the children of renters. The homeownership rate for the children of homeowners was 51 per cent in 2019, compared to 60 per cent a decade earlier. Meanwhile, the homeownership rate for the children of renters fell from 40 per cent to 22 per cent over the same period.
Government schemes
The IFS suggested that when it came to support from the government through initiatives, such as the mortgage guarantee scheme, renters would already need to be close to affording a home.
For people with lower earnings, a scheme which allows for a smaller deposit is less impactful as the buyer is still constrained by maximum income multiples. However, the IFS found this was more beneficial for those with less savings.
Some 18 per cent of renters aged between 25 and 39 do not have enough of a deposit to buy a home, and this rises to more than a quarter among renters in their late 30s.
Economists are generally expecting the committee to hold the base rate at 5.25 per cent. The rate was held at 5.25 per cent in November with the MPC voting by a 6-3 majority for no change. Three members preferred to increase it by 0.25 percentage points to 5.5 per cent.
Deutsche Bank expects the same voting split this time. The bank’s chief UK economist Sanjay Raja predicts that MPC members Catherine Mann, Jonathan Haskel, and Megan Greene will vote for a quarter point hike, while the six other members of the committee will vote for the rate to be held.
Raja said: “Since the bank’s November Monetary Policy Report (MPR), market conditions have shifted, but economic data have remained broadly in sync with the bank’s most recent projections. The one bright spot for the MPC is inflation, which surprised lower on headline, core, and services CPI.
“The MPC will very likely retain its tightening bias, while reiterating its ‘higher for longer’ message that rates will need to remain ‘sufficiently restrictive for sufficiently long’. The risk? Some more explicit push back against market pricing, given the MPC’s view of upside inflation risks.”
Deutsche Bank also predicted no changes to the bank’s quantitative tightening (QT) sales strategy.
Regarding when the UK will see interest rates start to fall, Raja said “Rate cuts still expected from Q2-24, but risks of a delay are mounting. We continue to think that bank rate has peaked. And more importantly we still think rate cuts will come from Q2-24 onwards – albeit at a gradual pace. However, our conviction levels have fallen. Wage stickiness and upcoming changes to CPI (from weights to source data) could end up delaying the start of any easing cycle.”
‘Wait-and-see mode on base rate’
Deutsche Bank’s viewpoint on next week’s MPC meeting was echoed by analysts at investment firm AJ Bell and Capital Economics. AJ Bell predicted that the bank will “stay in wait-and-see mode.”
Ashely Webb, UK economist at Capital Economics, said: “The possibility that the labour market is tighter than it looked has placed a question mark over when the Bank of England will be able to cut interest rates. Our forecast for services inflation and wage growth to fall only slowly is why we don’t think interest rates will be cut before late in 2024. That said, if the bank shifts its focus towards more forward-looking indicators earlier than we expect, interest rates could be cut sooner.”
A poll by Reuters also predicted that the MPC will keep bank rate at 5.25 per cent on 14 December and through the second quarter of 2024. All but one of 68 economists, in a Reuters poll taken in the first week in December expected the Bank of England to hold bank rate at 5.25 per cent next week. Only one economist predicted a 25 basis point hike.
According to a Mortgage Solutions poll, around 37 per cent said that they had seen a rise in Help to Buy customers struggling to remortgage to some extent, whilst 35 per cent said they have seen an increase to a large extent.
Approximately 29 per cent said that they had not seen a change in Help to Buy customers struggling to remortgage at the end of their interest-free period.
A report from The Telegraph found that the number of first-time buyers in arrears had doubled in the last year to 4,845 households.
The Help to Buy scheme closed for applications last year and offered first-time buyers equity loans of 20 per cent, going up to 40 per cent in London, to help them buy new build properties with a lower deposit of five per cent.
The loans were interest free for five years, but for loans taken out between 2013 to 2021, the rate was 1.75 per cent for a year which increased every year by the Retail Price Index plus one per cent. For those who bought more recently, the rate rises by the Consumer Prices Index plus two per cent.
David Hollingworth, associate director for communication at L&C Mortgages, said that the “timing could hardly be worse for those reaching the point where interest becomes chargeable”.
He said: “Mortgage rates have risen rapidly which could see the borrower moving onto a higher mortgage rate at the same time as interest on the Help to Buy loan becomes payable, albeit at a rate that will now look low at a starting rate of 1.75 per cent.”
Hollingworth noted that higher rates along with other cost of living could make it “tougher for those looking to switch”, with some having planned to repay the equity loan after interest-free period assuming that there would be enough equity to draw on.
“The equity may still be there, but the problem may now be more centred on the bigger monthly commitment on the existing borrowing. Borrowing more could be a stretch too far when affordability is inevitably becoming a bigger challenge in a higher rate environment with bigger outgoings,” he added.
He said that some would have the option to leave the equity loan in place and could be wondering if paying off the loan could be bad timing if prices fall.
“The difficult element for Help to Buy borrowers is always in determining the amount that must be repaid as it fluctuates in line with the property value.”
Hollingworth said: “It’s always dangerous to try and second guess the market but we may see more hanging onto the equity loan for longer. Managing the mortgage and understanding the options will be an important area for advisers to help their customers understand the options along with possible pros and cons.
“That will include product transfers as many Help to Buy borrowers will stick with their existing lender rather than take on the cost and time of dealing with the Help to Buy administration.”
Customers could become ‘stuck’ with current lender
Paula Higgins, chief executive of HomeOwners Alliance (HOA), said that the combination of coming off a lower fixed rate deal and paying interest rate on equity loan could be up to 40 per cent of the value of the property.
Higgins added that the trade body had heard of some lenders not offering a remortgage where the equity loan will remain in place and would require the loan to be fully repaid on completion.
“This means that these homeowners with equity loans are likely to be stuck with their existing lender and cannot shop around. Added to the nightmare is that people’s affordability may have changed dramatically since purchasing the property, so could very well fail affordability tests if they were in a position to shop around for a new deal.
“The cost of living crisis and soaring energy bills has eroded people’s wealth, resulting in a rethinking of people’s future plans. Instead of being in a position to upsize in a couple of years after buying their Help-to-Buy property, the reality is that they could very well be looking to move as they can no longer afford their home. And on top of that they need to find cash to pay off the equity loan,” she explained.
Higgins continued that the HOA had detailed advice on how to remortgage a Help to Buy property, with the top tip being to get in contact with a mortgage broker as they can lock in a deal up to six months ahead and compare deals with your existing lender and other lenders.
She added that if people were in financial hardship it was best to speak directly with their lender to explore options like extending the mortgage term.
Help to Buy customers trapped in ‘perfect storm’
Chris Exley, director at Exley Financial Planning, said, that Help to Buy customers were “trapped in a perfect storm” from rising house prices and interest rates.
He explained: “For a variety of reasons, most want to repay the Help to Buy loan as soon as they can. Some can pay cash, others can downsize, but for most of us, this means replacing the Help to Buy loan with a mortgage.
“There’s a sting in the tail. House prices have risen around 30 per cent in the last five years, which means the amount owed to Help to Buy increases by 30 per cent also.
“The result – a £50,000 interest-only equity loan at zero per cent interest is now a £65,000 interest and repayment mortgage at five per cent interest – monthly payments go from nothing to £300 minimum.”
He noted that for many repaying Help to Buy was a “non-starter”, so the remaining options were to sell up or leave it in place.
“The latter restricts remortgage opportunities, but retains an affordable ‘holding pattern’. The hope then is that a fall in house prices, and a settling of interest rates next year would make full repayment viable,” Exley explained.
Rhys Schofield, brand director at Peak Mortgages and Protection, said that extra few hundred pounds had been the “straw to break the camels’ back for many of them, leaving little option but to consolidate their other debts to make ends meet and reduce their overall outgoings.”
Samuel Ewen, managing director at Rosehill Financial Services, said that the interest-free period with Help to Buy “can make it feel like ‘Monopoly’ money, because you don’t have to pay for it right away”.
He continued that he would always discuss future implications with clients, such as rising interest rates and the amount you repay based on the future value of the property.
“More recently, where mortgage rates have risen, the starting Help to Buy interest chargeable may actually be cheaper than raising funds to pay off the loan, but the issue is that some lenders may not take on a remortgage where a Help to Buy loan remains. For those that do, we’ve found that the legal side of the process takes forever and a day,” Ewen added.
Hargreaves Lansdown noted that it was the first time since June that two-year fixed rates had been at this level.
Sarah Coles, head of personal finance at Hargreaves Lansdown, said the lower rates could “help bring a chunk of buyers back to the market”.
The firm said mortgage approvals in June came to 54,700 but by October, this had fallen to 47,400. It predicted that lower pricing could “bode well for the property market in the coming months”.
Hargreaves Lansdown also said house price data from the Office for National Statistics seemed to show that it took three to four months for the impact of rates to be realised, and suggested that the effect reduced rates on house pricing would be seen by spring.
Lower two-year fixed rates ‘psychologically important’ to buyers
Coles said: “Mortgage rates have had a torrid year. They shot sky-high in the aftermath of the mini Budget at the end of 2022, so spent the first few months of the year gradually dropping back. This slowed as inflation’s downwards path proved bumpy, and then reversed, climbing gradually from late April.
“In May, when April’s inflation data revealed core inflation had risen, they rose more quickly, and in June, when May’s inflation rate didn’t move at all, they continued their rapid ascent. They peaked at 6.85 per cent at the beginning of August, but have fallen as the market has started to believe we have passed peak interest rates.
“There’s a good chance that the six per cent threshold could be psychologically important for a number of buyers, who decide it’s a good time to take the plunge.”
She said there would not be a “seismic shift”.
Coles added: “Given that rates are expected to fall further from here – and that drops will accelerate once rate cuts are on the cards, there are plenty who will decide to wait and see. However, in a property market this sluggish, an influx of new buyers will provide some welcome relief for those who have had their home on the market for months without interest.
“House prices may not react so fast. In the past year, mortgage movements have tended to take around three or four months to feed into the official house price figures – partly because of the time it takes to complete a sale. Sales figures for the rest of the year are likely to reflect higher mortgage rates over the summer and autumn, which are unlikely to be particularly spectacular.
“Crossing the six per cent threshold means we could see mortgage approvals pick up towards the end of 2023 – but house prices are likely to take to the spring to warm up.”
Almost 200 bank branches are due to close next year, with around 600 closures already confirmed for the years ahead. This continues a trend seen over recent years, with banks and building societies increasingly closing their physical branches and instead dealing with customers online.
While brokers said that such moves are actively boosting the advice industry, there were some who cautioned that banks were letting customers down by behaving in this way, and potentially falling short of Consumer Duty expectations.
Bank aren’t interested
Martin Stewart, director of London Money, said that it seems banks no longer have “the capacity, infrastructure or desire to provide wholesale market advice to the consumer”.
Instead they focus on only working with “loyal customers” and the most vanilla of cases, which leaves the market open for brokers to “consolidate their position as the dominant provider of regulated mortgage advice in the country”.
Bad news for the high street
The closure of so many banks is a “sad indictment” of our times, argued Michelle Lawson, director of Lawson Financial. She noted that banks had previously been “a stalwart of a bustling high street” but had now pushed people towards dealing with banks digitally.
Rhys Schofield, brand director of Peak Mortgages and Protection, said that the closure of bank branches was “terrible news for high streets” but a positive for brokers who could offer face-to-face appointments which are “desired by so many for the biggest financial decision many customers have to make”.
A better experience for brokers and clients alike
Richard Campo, founder of Rose Capital Partners, said that these days the majority of clients he deals with shop around for a broker rather than a bank, a trend which has only grown since the pandemic as “brokers were faster to adapt to video meetings and a smooth online journey vs the big banks”.
He added: “Clients don’t have the time or inclination to walk into a branch these days, certainly in our experience they prefer the convenience and flexibility video meetings offer as they can slot that into their day.
“From the broker perspective that is great as well as we do fewer evening or weekend calls now and can manage more in the daytime than we did in the past. So it seems like a win/win for brokers and clients.”
Pushing borrowers towards brokers
Lewis Shaw, owner of Shaw Financial Services, said that banks’ attempts to digitise their services “plays directly into brokers’ hands”.
He continued: “Why anyone would want to go and sit in a branch and talk about one set of products is beyond me when they can speak to an independent broker who considers hundreds simultaneously.
“As technology improves, brokers and consumers alike must change with it or face being left behind.”
Rohit Kohli, operations director at The Mortgage Stop, said that borrowers may increasingly turn towards brokers for “personalised, expert mortgage advice”.
He added: “The changing banking landscape not only reflects a move towards digitalisation but also underscores the enduring value of bespoke, professional guidance in the mortgage sector.”
Riz Malik, founder of R3 Mortgages, said that the need for local financial guidance was strong, but not an option from banks.
“This has steered more customers towards brokers, who have eagerly welcomed them and now outpace many lenders’ sales teams in generating business,” he continued.
Do borrowers want face-to-face help?
According to Ranald Mitchell, director of Charwin Private Clients, there is little impact on the mortgage market from branches closing.
He explained: “There will be a small number of people who like the personal interaction, trust and familiarity in dealing directly with a bank or building society, but they are few and will now find alternatives and move with the times.”
Graham Cox, founder of SelfEmployedMortgageHub, said that the move towards operating online more frequently was making it easier for independent mortgage brokers to compete for business with high street lenders.
“Some lenders, like Metro and Nationwide are trying to buck the trend by opening or maintaining branches., and there’s undoubtedly a market for face-to-face mortgage advice, albeit one that’s shrinking,” he concluded.
Lenders are showing disdain for their customers
Luke Thompson, director of PAB Wealth Management, said that the approach of lenders in pushing borrowers towards finding their own deals online shows the “disdain lenders have for their customers”.
He continued: “I struggle to see how not offering advice to customers and forcing them to pick their own deal via a website is compliant with Consumer Duty. These are the kind of consumer issues the FCA should be looking into in more detail.”
This point was echoed by Charles Breen, founder of Montgomery Financial, who said that with Consumer Duty at the forefront of everything financial firms do “by shrinking their high street presence banks are sending a clear message to the public about what they value and it’s not the consumer sadly”.
In his role as head of intermediaries at Loughborough BS, he will join the senior management team and oversee intermediary-related activity and strategic planning.
This includes managing the team of telephone business development managers (BDM) and spearheading broker and customer journey improvements from a service and IT perspective.
Pearson has worked at Loughborough Building Society since 2017, initially joining as BDM before becoming national BDM in 2021.
Prior to that he was a mortgage consultant at Nationwide for around two years and before that he was branch manager at Derbyshire Building Society for nearly six years. He was also branch manager at Leeds Building Society for around six years.
Gary Brebner, CEO at Loughborough Building Society, said: “Ashley has been a real driving force since the launch of our intermediary proposition and, alongside other key individuals, has helped to create some solid foundations on which we are looking to build.
“His market knowledge and relationships throughout the intermediary channels are second to none and we look forward to him and his team putting into practice the ambitious growth plans we have in place to further extend our lending reach in 2024 and beyond.”
At the end of last week, Mortgage Solutions reported that Loughborough Building Society has amended its criteria for newly qualified professionals and people receiving benefits income.
In its new business range, selected standard residential fixed rates are falling by between 0.03 per cent and 0.32 per cent.
Selected new build exclusive fixed rates are being cut by between 0.15 per cent and 0.20 per cent.
All large loan fixed rates are reducing by 0.15 per cent and selected buy-to-let fixed rates are decreasing by between 0.03 per cent and 0.18 per cent.
On the product transfer side, selected residential fixed rates are falling between 0.03 per cent and 0.3 per cent and selected buy-to-let fixed rates are decreasing by between 0.03 per cent and 0.18 per cent.
New business and product transfer completion deadlines will roll on by one month.
TMW slashes rates
TMW is lowering rates for new and existing customers by up to 0.4 per cent with pricing beginning from 4.19 per cent.
In its new customer range, its two-year fixed rate for purchase and remortgage at 65 per cent LTV has fallen by 0.15 per cent to 4.19 per cent.
The lender’s two-year fixed purchase and remortgage rate at 75 per cent LTV will fall by 0.15 per cent.
The firm’s five-year fixed purchase and remortgage rate will decrease by 0.2 per cent to 4.54 per cent.
The products above come with a three per cent fee.
TMW is also reducing rates for new customers by up to 0.40 per cent on its large portfolio and let-to-buy ranges.
The company is also cutting rates by up to 0.2 per cent on the green further advance products, existing buy-to-let customer rates by up to 0.25 per cent large portfolio product by up to 0.2 per cent.
Houses in multiple occupation (HMO), large portfolio HMO, limited company HMO products are going down by up to 0.30 per cent.
Daniel Clinton, head of buy-to-let mortgages at TMW, said: “These latest rate cuts are focused on ensuring we are supporting all types of landlords and their needs, and follows on from last week’s reductions for HMO and Limited Company landlords.
With rates starting from 4.19 per cent TMW offer some of the most competitive rates in the market which we hope demonstrates our continued commitment and support for the sector.”
