The profile of the average first-time buyer has changed immensely over the last decade, with home buyers becoming more savvy and more aware of what is available.
Lenders have responded to this with an increasing choice in products and supporting information, helped along by the introduction of the internet which has made information more accessible.
First-time buyers are now even more clued up than their second time round counterparts.
Andy Frankish, director at Mortgage Talk, says: ‘The profile of a first-time buyer has changed. Some come to us knowing more than a second-time buyer. If you haven’t bought a property for five years, you may as well be a first-time buyer because the market has changed and moved on so rapidly.’
Research from the Council of Mortgage Lenders (CML) in conjunction with market research company MORI has indicated that young people are getting a foot on the property ladder later on in life.
The research looked at young people’s borrowing behaviour and attitudes to mortgages.
Bernard Clarke, communications manager for the CML, says: ‘When asked where they would like to be in 10 years, aspirations to own a home are particularly strong in younger age groups. This could be because affordability constraints are delaying entry into owner occupation, or because young people want to remain mobile in order to pursue a career.’
The average age of a first-time buyer has increased, according to similar research from Halifax. The lender found the average age of a first-time buyer is now 34 compared to 29 in 1974, a factor which Ian Curtis, sales manager at Professional Mortgage Services, believes is a result of increasing house prices.
‘People are living at home further into their late 20s, whereas it used to be until they were 20 or 21. Because prices have increased ‘ especially in the Greater London area ‘ people cannot afford to buy when they reach that age ‘ they have to spend longer saving up,’ he says.
Increasing house prices mean people are struggling to purchase their first home, especially in the South East.
Gary Styles, chief economist at HBOS, says: ‘Affordability is a big issue in the South East and in our research we wanted to highlight how difficult it is for a first-time buyer. However, for many areas of the country, housing is affordable ‘ it is the deposit issue which is a problem in London, where you can need around £34,000. Although low interest rates are helpful, if you do not have a deposit, it is not really relevant.’
Curtis is baffled as to how first-time buyers manage to generate a deposit, with average deposits touching £34,000 in London.
He says: ‘The first-time buyer profile has definitely changed. It is amazing how first-time buyers can now come up with such huge deposits. In the past, they were lucky to come up with 5% and now they are buying investment properties and can put down bigger deposits.’
Halifax is expecting to see house price inflation ease this year, which will be a welcome respite in areas such as London. However, Curtis says the first-time buyer problem is not over yet. ‘It will get worse before it gets better. I cannot foresee house prices stabilising ‘ they won’t go up as much, but we won’t get a huge property slump. As prices increase people will continue to rent or stay at home. The age of first-time buyers will continue to increase,’ he says.
Some lenders have responded to the first-time-buyer crisis by increasing income multiples above the standard 3.25 or 3.5 income multiple.
Curtis says: ‘The changing first-time buyer profile will influence the products offered. We have found lenders have already started to give more in their income multiples. There are more borrowers with jobs in the high net worth category, so lenders are happier to give increased multiples as there is a better ability to pay it back.’
Frankish has also seen an increase in the amount borrowers are prepared to take on. ‘There has been a noticeable trend of first-time buyers going to the maximum of their borrowing ability, which is reflected in housing market activity. People are now going to 3.5 or four times their salary,’ he says.
It is a worrying fact that despite borrowing to their absolute means, many first-time buyers are failing to understand the whole mortgage process in terms of the information given to them.
The CML’s research found that 40% of under 25s and 35% of 25-34 year olds said the most difficult aspect about taking out a mortgage was understanding the information provided.
‘This probably reflects the fact that younger borrowers are more likely to be first-time buyers who have to get to grips with various pieces of information without any previous experience to draw upon,’ Clarke says.
However, providing understandable information appears to be a job for both lenders and brokers.
‘Lenders need to appreciate they need to talk to the masses as opposed to thinking they are writing literature for their own underwriting team,’ Curtis says.
Frankish believes brokers need to explain the process in plain English to their clients. He says: ‘There is so much compliance and if you are talking to a client, there is so much information you have to get across. We have put together a pack in simple, plain English about the whole house-buying process on a step-by-step basis.’
Despite first-time buyers becoming more financially aware through sources such as the internet, there is still a need for professional advice, according to the CML’s research. Only 44% of under 25s went directly to a lender to arrange their mortgage ‘ with the rest opting for the help of an intermediary.
‘Among the young people who have entered home ownership, there tends to be an understandably greater desire for professional advice and help through the mortgage market than among older groups,’ says Clarke.
Curtis adds that the new internet technology which enables clients to arrange a mortgage online could actually work in favour for brokers as people are still afraid to buy online.
He says: ‘The only thing which will increase client retention for brokers is internet banking and mortgages. There is still a fear factor of just clicking a button to borrow £200,000 ‘ people are likely to want to speak to someone.’
Despite the majority of first-time buyers opting to visit a mortgage broker, only 36% of under 25s said they would visit a broker to arrange a second mortgage, according to the CML research.
‘Taking this at face value it would indicate that brokers are not giving good advice and the experience is not particularly good. However, people understand the process second time around and feel more confident so decide to do it themselves,’ Curtis says.
A modern approach
As the first-time buyer profile is continually changing, brokers and lenders need to adapt in order to keep abreast of the situation.
Even if the first-time buyer is not necessarily purchasing a mortgage online, it will probably be one of their first ports of call, when researching different products and Frankish believes a slick website is a must for brokers.
‘The classic first-time buyer is well used to browsing the internet. A broker with a good website which advertises the products clearly is going to do well, as they will attract the web shopping the first-time-buyer will do,’he says.
Providers need to be up-to-date within the market and the ability to appeal to the first-time buyer requires a young attitude.
‘Many lenders have adapted to this situation, such as Intelligent Finance. Although their product is not really cut out for a first-time buyer, they have marketed themselves as a direct, internet lender in a trendy way. This has attracted a lot of first-time buyers to their products. The way they are branded is very modern which is true for a lot of internet providers,’ Frankish says.
Curtis agrees you need a young attitude: ‘You have to be able to adapt. There is no point in a 55-year-old adviser trying to identify with a 20-year-old buying a home for the first time ‘ unless their own children are doing it.’
Adele Burton is a staff writer
The average first-time buyer is now 34 years old compared with 29 in 1974.
Finding a deposit is the hardest part of buying a house for those living in the South East.
Information provided to first-time buyers needs to become more user friendly.