Speaking on a panel of the New Homes Mortgage Senate in Didcot, Skipton Building Society’s national accounts and new build lead, Rachael Hunnissett said: “We’re looking into a market of real uncertainty. It seems like every year we’re saying things are a little bit hard on first-time buyers and then another year rolls around.”
She said one of the main challenges is that over half of first-time buyers last year were supported by inter-generational wealth to buy a home.
“That makes me feel really sad for our industry that we’re not working hard enough to support people that don’t have family wealth and it is a really big challenge that we need to invest in our industry,” she added.
Regulation change is key
Cameron Orcutt, co-founder and CEO for OnLadder, agreed and added regulations also played a key role.
He continued: “Obviously, the loan to income (LTI) limitation was put into place for real reasons in order to improve the resiliency of the mortgage market but an unfortunate by-product of that is ultimately first-time buyers aren’t able to get the mortgage loan that they need in order to get on the ladder.”
He called for more “collaboration and more openness to having these conversations around how we can all work together in order to bring these new solutions to market”.
Three main challenges for FTBs
James Turford, chief operating officer and co-founder of Even, added: “I think there’s never been a worse time to be a first-time buyer. Price to earnings ratios are at an all-time high, inflation is at a 40-year high and interest rates are on the up. I don’t know if anyone knows anyone trying to rent in London at the moment, but it’s virtually impossible.”
He said the three main challenges for first-time buyers was raising the deposit, followed by constrictions from LTI limits or affordability.
“I think we’ve gone through a period where LTI was probably the main constraint for a lot of people but increasingly as interest rates go up, affordability becomes a bigger and bigger issue for more and more people,” Turford noted.
Hunnissett continued that there was a “huge knowledge gap” with first-time buyers, for instance around stamp duty, which presented a barrier.
“We’ve got a responsibility as an industry to educate prospective first-time buyers and get involved in the advice process earlier on down the line so that we’re talking to people a year two years in advance and that really is where our industry pulls together well.”
Turford said that even as a smaller and newer lender it was getting a thousand enquiries a week, and that was partly down to people looking for education and understanding what options were available as “traditional options just aren’t enough”.
Help to Buy ending ‘not a cliff edge’
Orcutt that whilst there was some criticism of Help to Buy, it had done a “tremendous amount of good” by helping 60,000 homebuyers, 82 per cent of which were first-time buyers.
“Now that’s going away and we all have to really work together. It’s a highly fragmented industry, and we all need to talk and find a way in order to really bridge that gap that’s left behind,” he added.
Turford added: “I’m not aware of a new government scheme or an existing government scheme that solves challenges of first-time buyers as well as Help to Buy has done and for me, the key thing that it addresses is not only topping up people’s deposits, but doing it in a way that doesn’t impact their affordability in a material way. It also doesn’t require you to part rent.”
He said that Even was inspired by Help to Buy and it had “tried to use as much of the good bits of Help to Buy within a private proposition”.
Hunnissett said that Help to Buy ending was not the cliff edge that people had feared, pointing to applications being down 60 per cent year-on-year. She added that there had been a tailing off in its own application volumes as well.
Orcutt said that success of future innovative products depended on regulation and should allow lenders to lend at higher LTIs. It should also have low payments in order to make sure it is affordable.
Customer fairness was also crucial, he noted, and that came down to pricing of the blended rate, the combination of the first and second charge mortgage. He said that the blended APR of first and second charge should be around 95 per cent. It should also allow flexible repayments.
New products should be ‘simple, easy to communicate and good for distributors’
Hunnissett continued that there was still “hesitancy” from lenders around new offerings like OnLadder and Even.
“It’s not a case of we’re trying to hold back innovation, it is that we can’t actually get on board and make the moves as agilely as we would like to because we’ve got systems that have been created for the traditional mortgage market. But when you look forward, innovation absolutely is needed because what is available at the moment is failing so many first-time buyers and prospective first-time buyers,” she continued.
When asked how to make lenders and advisers comfortable with the proposition Turford said it was “continual conversations and education to build understanding about the product and which customers it might be suitable for”.
He added that Even was interest free, shared appreciation concerns were addressed by profit caps, and it provided second charge advice itself and got referrals from brokers.
“That’s really important for others because we get this a new product. There are similarities to Help Help to Buy but there are important differences as well, no one knows it as well as we do, and brokers shouldn’t be expected too because they’ve got lots of other products to think about,” Turford said.
Hunnissett said that there was growing pressures on mortgage product teams, stating that Skipton had released over 1,000 different mortgage products year to date, the equivalent of a re-price every 1.3 weeks.
She noted that with the ‘business as usual’ demands on product teams, this also can have an effect on innovation with limited capacity for exploring new opportunities.
She said that it did not have someone full time to look at scheme, but it did want to partner with someone it would have to be “really simple, really easy to communicate and right for our distributors as well”.
