First-time buyers risk missing out on low rates by second guessing market – analysis
But conversely, this is being challenged by what the naysayers would insist is a flatlining housing market in the shadow of Britain’s increasingly fraught discussions with the EU over a deal or no deal.
Last week, HSBC reduced rates on a number of fixed rate products, including its three-year fixed rate deal, which is now at 1.49 per cent fixed until 31 January 2023, available on a 75 per cent loan-to-value (LTV). This is one of the lowest rates offered on a 75 per cent LTV and with a £999 product fee.
However, even a rate that will not change for almost two-and-a-half years may be a hard sell for first-time buyers watching the property market with a different type of interest.
Another provider that announced new deals last week was TSB, which has introduced two new fixed rate deals, including a five-year deal of 1.84 per cent fixed until 30 November 2024 on an 85 per cent LTV.
Is it simply a case that jittery potential property purchasers think they will be offered even lower mortgage interest rates if – potentially – prime minister Johnson makes good on his threat of leaving the EU on 31 October?
Or, is it much more deeply rooted in the transient nature of “generation rent,” that they are reticent to follow their parents into chaining themselves to the mortgage millstone?
Peter Izard, business development manager at Investec Private Bank, says: “Competition is rife in the mortgage industry, which is – in part – having an effect on rates and ensuring that competition is making rates decrease, and this is making fixed rates more competitive.
“How long this will last, has an element of Brexit attached to it, like everything, but there is a supply and demand that is very much in the supply favour at the moment.
“There are a huge amount of lenders competing for a smaller pool of clients and when you have supply and demand in that favour, it favours the end client.”
He continues: “How long this will remain is the million-dollar question. What’s absolutely imperative is clients must do what’s right for them, at the time that suits them, rather than trying to second guess the market.
“However, you do get to a point where you think to yourself, I just don’t know quite how much further these rates can fall, so – from a timing perspective – it could be considered that now is a good time.”
Are rates as shallow as they are likely to get enough to attract new blood into the market, or is the mortgage industry dealing with a new and warier demographic?
And, more importantly, are first-time buyers in danger of missing a once-in-a-lifetime opportunity to pay less for their mortgage rates than their parents did, even if, and potentially because, they are attached to the more flexible two- and five-year fixed?
John Azopardi, mortgage and protection adviser at New Leaf, thinks that first-time buyers may be gambling on a magic bullet that would have mortgage deals remain at low interest rates, while house prices fall – something that is far from certain on either count.
“The current low rates on offer play through into improved mortgage affordability. Some who are new to the market may be holding off in the hope that house prices will fall, but there is no certainty that such a scenario will play out.
“With lower interest rates working through into lower monthly payments, first-time purchasers should be encouraged to be judicious and set aside surplus income as circumstances allow.
“Using overpayment options will go some way to mitigate the effect of a slide in prices and the spectre of negative equity,” he comments.
With the Bank of England (BoE) base rate still hovering at 0.75 per cent, it could be simply that we have entered a period of blasé thinking towards all interest rates.
Market sea change
Sebastian Murphy, head of mortgage finance at JLM Mortgage Services, adds: “Pretty much historically, we have been championing much longer fixed rates, between three- and five-year rates – perhaps not the seven and ten years, as they had some pretty heavy penalties if you come out of those.
“If you look at the mortgage clubs and the bigger lenders over the past three to four months, for the first time ever, five-year rate product sales have exceeded two-year rates, and that’s a proper sea change in mortgage lending, and the type of lending we’re used to seeing in the UK.
He continues: “Brokers are making it very apparent now that rates are super low.
“Even though you might see a base rate decrease with what’s going on with Brexit at the moment, the longer-term view is that rates aren’t going to stay this low forever.”
It would take a serious economic shift to return to the dark days of the eighties when under a sitting Conservative government with a right-wing prime minister rates were hiked up to around 15 per cent, with some mortgages even topping 18 per cent.
The issue that current lenders face is a generation that has grown up on low interest rates and is taking little notice of possibly the lowest mortgage rates that will be available in their lifetimes.
New Leaf adds Open Banking-ready 360 Lifecycle software with client-facing front-end
The software includes two client-facing portals which brokers can send to customers to fill in their details and fact finds when convenient.
The system from 360 Dot Net is application programming interface (API) ready to link directly with lenders and can connect with 27Tech’s MortgageApply software.
It will also allow for Open Banking integration to retrieve client data when completing fact finds.
360 Dot Net business development director Mark Dryden told Mortgage Solutions that the client fact find portal had been a great success with customers already.
“Of the 20,000 client fact finds we’ve sent out to customers, 78% have been returned completed,” he said.
“And this isn’t based around one demographic. While 25- to 34-year-olds have the best response rate, 55- to 64-year-olds have the second highest response rate.
“Combined with the initial client data portal, this can save advisers up to an hour and a half per customer,” he added.
The system also includes the 360 Accounts package.
Digital client engagement
New Leaf Distribution managing director Mark Hobbs said the tie-in with 360 Dot Net recognised that client engagement was key for advisers to embrace into the future.
“Client engagement is a must-have to bring the client closer to the process and effectively save the adviser time,” he added.
Carlos Thibaut, CEO of 360DotNet, said the features aimed to reduce the unnecessary pain in the advised mortgage process and to reduce the processing time.
“Next year will see Open Banking integration permissively extract bank account information and bring that into the FactFind, ID verification and credit reports to enhance the Know-Your-Customer gathering, and MortgageApply functionality to easily push applications directly to lenders,” he said.
TMW’s six-week product transfer window raises broker concerns
The buy-to-let lender, which is part of the Nationwide Building Society, only allows a product transfer to be completed within six weeks of the deal end.
TMW’s stance was confirmed when it released details of its retention proc fee last month.
In contrast, most lenders across the market allow product transfers up to three months before the deal expires.
TMW’s stance has prompted fears that brokers will be unable to complete a full market review in the time allowed or that delays in the process could result in borrowers slipping onto more expensive standard variable rates.
New Leaf Distribution mortgage and protection adviser John Azopardi said the typical three- to four-month window was necessary to allow sufficient time to arrange a remortgage to a new lender if the current lender’s products were uncompetitive.
“By restricting broker access to transfer or switch products until six weeks before the current product ends it will inevitably lead to several problems,” he said.
“If a remortgage cannot be arranged in time, the borrower will spend some time on The Mortgage Works standard rate when they fall off their existing product – essentially an additional form of penalty.
“And inertia and the fear of not getting a deal with another lender in time may mean that borrowers accept inferior products from The Mortgage Works rather than the appropriate rate for the lender’s risk.”
He added that it also gave a bigger window for lenders to approach borrowers directly and exclude the broker.
Review entire market
John Charcol head of specialist lending Paul Elliott (pictured) echoed Azopardi’s concerns that the six-week limit made it harder for brokers to do their job.
“An adviser should review the entire market in conjunction with product transfers on offer from the current lender before making a recommendation,” he said.
“Given that six weeks is a short window for a move to a new lender, it means an adviser must make the call on whether to recommend that the client move to a new provider based on the product transfer rates available at the time of their market review which would normally be 10 – 12 weeks before the current end date.
“This in turn means the adviser cannot guarantee that the rate they are looking at will actually be available when the client makes an application for their product transfer.
“The rate could be higher which could change the recommendation, or the rate could be lower which could again mean that the client should have stayed with their lender instead of moving elsewhere,” he added.
However, Elliott added that if the client was not interested in or for some reason could not look elsewhere, then six weeks would be enough time to complete a straight swap.
Delays in process
Likewise, Buy to Let Club managing director Ying Tan was less perturbed but agreed problems could arise should there be delays in the process.
“Of course longer than six weeks would be nice and preferable, however our consultants have found six weeks to be plenty of time given how quick product transfers can take,” he told Mortgage Solutions.
“A challenge may arise if there were any down valuations from the automated valuation model for instance, however so far we have not seen any evidence of this.
“A good consultant should be all over their renewals during this period when purchase volumes are low,” he added.
Nationwide declined to comment.
MAB added to The Mortgage Lender panel
Mortgage Advice Bureau head of lending Brian Murphy (pictured), said: “We are delighted to be joining forces with the team at The Mortgage Lender and providing our advisers with direct access to their product range.
“We’re committed to offering our customers the best service possible and continuing to grow the range of products available to them.”
The Mortgage Lender sales and marketing director Pete Thomson called The Mortgage Advice Bureau “a major player in the market” and said “the volume of mortgages they place and customers they support is huge”.
He added: “Since launch just over a year ago we’ve been in the enviable position of being able to attract and work with some of the most respected networks and distributors in the industry.
“We’re excited to see what the coming year will bring.”
MAB joins Sesame, Tenet, Pink, First Complete, The Right Mortgage & Protection Network, John Charcol, New Leaf Distribution and HL Partnership as a network distribution partner of the Trevor Pothecary backed lender.
New Leaf adds TML to panel
It will give advisers access to a range of mortgages for borrowers who don’t quite fit the requirements of high street lenders, including those with complex income situations.
New Leaf Distribution owner Chris Nairn said: “We’re always looking for ways to expand the proposition our advisers are able to offer to attract new customers.
“The Mortgage Lender’s ethos of doing what it says on the tin, together with its competitive pricing and a pragmatic approach to underwriting make it the ideal partner for us, our advisers and their customers.”
The Mortgage Lender sales and marketing director Pete Thomson added that the network was growing at a rapid rate and challenging the market.
He said: “As a result, brokers can offer highly competitive rates and a sensible, common sense approach to applications which are underwritten on their individual merit.
“We’re thrilled to welcome New Leaf Distribution and we’re looking forward to building a close working relationship with its team of advisers.”
The savings culture of first-time buyers – Marketwatch
This week Mortgage Solutions asked our experts whether they felt young people had lost the habit of saving for their first home?
John Azopardi, mortgage and protection adviser at New Leaf Distribution, explains that first-time buyers have been left climbing Himalayan peaks to reach their goal of home ownership.
Stacey Gulliver, financial adviser at MoneySprite, argues that childhood financial education can help ensure young people are prepared for the demands of committing to saving.
David Hollingworth, associate director communications at L&C Mortgages, notes that government leadership will be key to improving prospects for first-time buyers.
John Azopardi, mortgage and protection adviser at New Leaf Distribution
No, they haven’t lost the savings habit. If younger borrowers were asked to climb Ben Nevis before the financial crisis, they are now being asked to climb Mount Everest, particularly in London and the South East.
Property values have continued to rise, outstripping increases in annual incomes, and although lenders have progressively improved the number of high percentage mortgages they are prepared to grant, it is quite a task to get together a meaningful deposit.
Since the financial crisis, successive governments have tried to promote low cost borrowing schemes and reduce the cost of interest to first-time buyers. But the shortage of supply of affordable homes, with an increasing population, particularly in the South East, has led to new borrowers needing substantial deposits to buy their first home.
Credit should go to the lenders who have tried to think outside the norm, by developing and promoting lending schemes that prompt family assistance, for example the Family Springboard from Barclays.
Reliance on the Bank of Mum and Dad has become a regular feature of new borrowing. But it’s good to see that young borrowers are having this discussion with their parents and other close relatives, and that lenders are prepared to accept gifted deposits.
After all, these borrowers are creditworthy – often used to handling credit commitments – and are unlikely to default when a family member has given them funds towards a purchase.
Building more affordable homes has to be the answer, but successive policy-makers have failed that challenge in the last 20 years
Stacey Gulliver financial adviser at MoneySprite
Yes, I think some have lost the habit or rather the heart to save. House prices are so high and salaries for younger people can be low so even if they have a 5% deposit, using the income multiples they could achieve for a mortgage, it may not be enough to afford the home they want. Also, the younger generation want everything now; the thought of saving for 10 years probably puts younger people off saving, as they believe they have better use for their money now.
Most of my first-time buyers wish they had saved harder from a younger age when they realise how much deposits and all the associated costs of purchasing a home are.
I have found some of my young clients are relying heavily on parents or grandparents to provide or help top up deposits, however family members are very pleased to be in the position to help their children or grandchildren onto the property ladder.
The age of first-time buyers is certainly rising as young people are taking longer to save, prioritising travel or staying in education longer before making their first purchase.
Even if they are paying rent and general living costs there is often little left over for savings, meaning it can take years to accumulate even a 5% deposit. And in the meantime property prices are still rising.
There should be more emphasis on savings and running a home at school from a young age; even four years old is not too young to learn about money. This would be a very valuable exercise to encourage young people to understand how to save and get into the habit.
I am teaching our children to save for their house deposit. My nine-year-old son sold some of his toys, when he was asked what he was going to buy he replied: “I’m saving for my house”.
He wants an £8m mansion so has a long way to go, but it is a step in the right direction.
David Hollingworth, associate director communications at L&C Mortgages
It’s no secret that one of the key challenges for first-time buyers is accumulating a big enough deposit. Although the options for those with only a small deposit are broader and more competitive than in the immediate aftermath of the financial crisis, many will need a bigger amount to bridge the gap between what they can borrow and the high purchase price of the property.
It would be easy to suggest that first-time buyers today and for the future simply don’t save hard enough early enough. However, it’s not all down to a must have it now culture and many young people find themselves facing high levels of student debt before even thinking about buying a home or saving for their retirement.
The age old issue of not building enough homes leads to higher house prices and also higher rents as more rent for longer. That does not make it easier to put money away each month and if prices continue to rise at a faster rate than they can save it will ultimately lead to people giving up on home ownership.
The Help to Buy ISA and Lifetime ISA are important front end incentives including the government bonus. These will undoubtedly help but the underlying issues will need to be addressed to cultivate the belief that home ownership is within realistic reach and in turn develop and maintain the right saving habits.
Although longer-term renting is likely to become more popular the desire to own remains a strong one. So while some might fail to cut back their spending enough, I’m sure many will still be prepared to sacrifice some of the luxuries to buy their first property.