A new survey of would-be first-time buyers by Santander suggests that deposits are one area where buyers suffer under certain misconceptions.
The lender found that two-fifths had not saved a penny towards a deposit, with the average at around £8,300. When asked what they were targeting as a total saving for a deposit, responses came to an average of £24,816.
Yet figures from the Office for National Statistics found that the average deposit put down by those purchasing their first property in March was much higher at £44,000.
Miguel Sard, managing director of Santander Mortgages, suggested that the “dream” of home ownership was looking increasingly out of reach for the next generation of first-time buyers.
Innovative lenders opening up more small deposit options
Greg Cunnington, director of new lender relationships and new homes at Alexander Hall, said that his firm regularly deals with first-time buyers who are unclear about their deposit options, noting that while developers and the Help to Buy scheme had invested a lot of time into promoting the message that home ownership is possible with a five per cent deposit, some clients still feel you need 10 per cent or even 15 per cent deposit.
He added that over the last 12 months lenders have been particularly innovative in helping borrowers with small deposits, such as by offering increased loan amounts or introducing more inter-generational lending options.
“The more innovation here the better, as if we can combine this with increased client awareness of the options it is better outcomes for all,” he continued.
Understanding all of the costs
Carmen Green, mortgage adviser at Xpress Mortgages, said that she felt the main part of her job was to educate clients, particularly first-time buyers who may have misconceptions about how the process works “usually fed to them by their parents who took their mortgage out a long time ago when the mortgage market was very different”.
She said this will not only mean taking the borrower through the basics of how the process works, but also highlighting the associated costs that come with a purchase, from the stamp duty and survey fees to solicitor costs.
Green added that “many first time buyers are unaware of what and how much the associated costs are”, so this forces them to address whether they really are ready to take on such a large commitment.
She continued: “Some clients know about stamp duty but haven’t a clue how much it is and/or don’t know that there is the stamp duty allowance up to £300,000 now for first-time buyers which can come as a nice surprise. Many clients don’t know if a solicitor is going to cost them £200 or £1,000, so they often ask for some quotes or an expectation of all other associated costs.”
Broker’s educational role
Cunnington noted that there are other common misconceptions among first-time buyers, such as the idea that you need several years in order to build a good credit score or that self-employed clients will have issues obtaining a loan even if they have a strong income.
He added: “These are scenarios where it is good for a mortgage intermediary to speak to first-time buyers at the early stages of the process, so that we can guide them through.”
A question of commitment
Andy Wilson, founder of Andy Wilson Financial Services, said that his firm never hears from first-time buyers who don’t think they need a deposit, suggesting the message that 100 per cent mortgages are long gone has clearly got through to them.
He continued: “ If we see the clients before they are exposed to misleading online forums or other misguided information, we can educate them as to the need for a deposit and why it is necessary, and how much things are improved cost-wise if they get a larger deposit. We can also ensure they understand the other costs of buying a house.”
Wilson added that he is seeing a “fair amount” of first-time buyers where the parents are providing the bulk of the deposit, and admitted he sometimes questions how committed those buyers will be with their new mortgage and home running costs, having not saved anything towards the purchase themselves.