But with house prices reaching all-time highs, even those who have raised more than the minimum amount needed for a deposit can still be shut out if their income does not allow them to borrow enough for the property of their choice.
So, this week, Mortgage Solutions is asking: Would increasing loan to income (LTI) multiples up to a certain value be more beneficial for first-time buyers? And, do low deposit schemes create too much reliance on government intervention?
John Phillips, national operations director of Just Mortgages and Spicerhaart
Increasing loan to incomes where prudent would certainly help more first-time buyers get onto the housing ladder.
While it is difficult for first-time buyers to save a 10 per cent deposit, another hurdle they currently have to overcome is the fact they are treated differently to other clients.
While it is hard to say whether it would be more or less beneficial than the government-backed 95 per cent loan to value (LTV) mortgages, it certainly would help more people onto the ladder.
The best way to support first-time buyers is for lenders to treat them like other clients.
While we understand there are regulatory restrictions for lenders, affordability is a better indicator of risk. By assessing affordability, rather than using strict loan to income multiples, lenders can accurately assess each situation individually.
This will take into account an applicant’s full circumstances, not just whether they are a first-time buyer. Then, lenders can increase LTI for clients who can afford it, not just those who are already on the housing ladder.
Rates for these increased LTI products should still be the same, as if the affordability checks demonstrate the client can afford the product, it wouldn’t be fair on customers to make them pay more.
While some may feel increasing loan to income multiples may be a risky move, this doesn’t necessarily have to be the case.
If lenders are assessing affordability, then it would actually be prudent of them to increase loan to income multiples for certain cases.
Rupi Hunjan, CEO and founder of Censeo Financial
I think you need a mixture of both because you can have a low deposit, but the income still will not meet everyone’s requirements.
Now, people are elated at the fact they can have a low deposit but if the income multiple doesn’t work then they still can’t buy a house. The fact they have a low deposit is just one part of getting a mortgage.
The income multiples and stress tests are important as well as it still has to be responsible for lenders and fit within their criteria.
The 3x or 4x loan to income multiple is just a rule of thumb, but overall affordability will always need to be primarily based on the debt-to-income ratio.
Existing schemes do not make people with low deposits or incomes more reliant on government intervention because that has always been there.
The housing market has been overwatered politically, economically and socially. There always seems to have been some sort of government assistance.
We had the mortgage indemnity guarantee in the past and more recently of course, the Help to Buy and the 95 per cent loan to value (LTV) mortgage guarantee scheme.
Much of this support is there because of inflation and house price rises. Maybe if there was never any government intervention in the first place and we had a pure market, we would not be in a position where some people need additional help.
But because we have never had a pure market, government help is always needed.
Richard Campo, managing director of Rose Capital Partners
From my perspective, the issue is far more about deposit levels than income multiples.
Our clients are predominantly in London and the south east of England and a typical first-time buyer has to spend around £500,000 or more on their first property.
With lenders favouring people with a 15 per cent deposit or more, that simply freezes out clients who don’t have that amount of money or can’t rely on family to help them.
If you use that as an example, being able to buy with a five per cent deposit or £25,000 is far more achievable than a 15 per cent deposit or £75,000. A mortgage is typically cheaper than what people are paying in rent, so opening up the small deposit market to new buyers is a great thing as the income is rarely the issue.
Lenders only pulled out of this area of lending due to fears of a house price crash following Covid-19, then they have been cherry picking the lowest risk clients ever since due to a lack of capacity that lockdown and other restrictions have created for them.
I don’t blame them for that, but it hampers the market if you freeze out first-time buyers.
I don’t agree that you should raise LTIs for first-time buyers though. I feel that affordability works on simple curve – the more you earn, the more you can afford to borrow.
Once you have cleared your utilities, food and essential costs, which are broadly the same for everyone, higher earners simply have a greater capacity to borrow more.
Pushing bigger loans on lower earners I feel would be recipe for disaster. I strongly suspect any government-backed guarantee will cap LTIs at 4.5 times income for that reason.
This week’s comment was in response to the article: Buy-to-let market opens up to first-time landlords – Moneyfacts
Trying to be a Retired IFA said: “It’s good to see the market opening back up to first–time buy-to-let landlords.
“The often-overlooked issue is there is a housing shortage due to under–investment by the government, so the private sector has stepped up with its own money, at its own risk, to provide a roof over people’s heads for a return.”
“The UK economy needs a healthy housing market. Many people need a place to rent as they can’t afford to buy, or don’t want the costs involved meanwhile the population continues to outgrow supply,” they added.
No maximum lending age
They continued: “What mortgagees should do is remove the outdated maximum age to lend to. Why is that relevant anymore especially when a management company looks after the day-to-day affairs of the property?
“With rising unemployment and stagnate wages the last thing people need is a mortgage liability. Surely, it’s better to rent and have local housing allowance so the place lived in can be made a home.”
Trying to be a Retired IFA added: “Owning it doesn’t a home make per se and if all landlords stopped being landlords overnight it wouldn’t solve the housing issue. It would however make it worse for millions who rely on it to provide them a home.”
However, inflated house prices have pushed a number of borrowers into different LTV tiers meaning they now have to pay significantly higher rates on their mortgage loan than previously expected.
So, this week, Mortgage Solutions is asking: Should there be some leeway for borrowers just outside of LTV limits?
Adam Hosker, director of Bespoke Finance
I was loading into play Call of Duty one night and a friend asked me: ‘House for £600,000 with a £75,000 deposit, for 30 years. What do you think the monthly repayment will be?’
After opening Twenty7Tec on the other tab, I told them: ‘It will be £2,300 ballpark but ideally you would want a £90,000 deposit, because then you would be down at 85 per cent LTV rather than 90 per cent LTV. Then you’d be paying around £2,000.’
It was then I was reminded of a debate I had the other week. My friend was not at 90 per cent LTV, he was at 87 per cent LTV, right in the centre of two LTV brackets.
Which begs the question as to why we have arbitrary rigid five per cent brackets?
If my friend would be paying £2,300 on the upper bracket and £2,000 on the lower bracket, wouldn’t it be rational to have a rate in the middle where he’d be paying £2,150?
Likewise, if I was a lender with an uncompetitive product at 80 per cent LTV and a competitive one at 85 per cent LTV, I’d be asking the credit risk department to consider increasing the maximum LTV by just 2.5 per cent.
What difference might a 2.5 per cent LTV make to risk? Very little. What difference does 2.5 per cent LTV make when it comes to winning new business? It’s an untapped market.
I’ve made a business case for lenders to adopt smaller brackets of up to 2.5 per cent. Meanwhile, some of my colleagues ask why have brackets at all?
Just have the sourcing program talk to lenders’ API to provide quotes based on risk.
Adam Wells, co-founder of Lloyd Wells Mortgages
The biggest difference between brackets at the minute is between 90 per cent and 85 per cent.
Using Halifax as an example, today their two-year fixed rate is 3.09 per cent at 90 per cent with a £999 fee. If you have a 15 per cent deposit then the rate drops to 2.48 per cent, a difference of 0.61 per cent.
According to Rightmove, the average house price in Bristol is £336,637. The difference between a 10 per cent deposit and a 15 per cent deposit is £16,832.20.
Taking this into consideration, you could argue that a product at 87.5 per cent would make more sense.
With a lot of lenders, such as HSBC, once you are able to put down a deposit of 15 per cent, the affordability becomes more generous.
With the risk of property prices dropping, depending on the stamp duty holiday extension in the budget on 3 March, a buyer completing with a 15 per cent deposit today, might find themselves with equity of less than 15 per cent in a few weeks’ time.
The best thing to do is to speak to an independent mortgage adviser and make sure that you are not stretching yourself and that should anything happen you are fully protected, should your situation change.
Chris Sykes, associate director and mortgage consultant at Private Finance
In simple terms it is a good idea, LTV bands are banks pricing for risk so it would make it easier for borrowers and be good for borrowers to take advantage if they can manage an extra one to two per cent but not an extra five to ten per cent.
However, in practice the mortgage market is already hard enough for many buyers to navigate without a broker.
Introducing smaller LTV bands would make things more complicated for lender product teams as well as more complicated for buyers not using brokers to navigate the market.
Pricing for risk is done by some lenders, specialist building societies or private banks mostly, but mainstream lenders are not equipped to deal with the complexities behind pricing in this way.
We may see open banking one day meaning lenders embracing technology can price for risk, but it could make it very complex to insure you are getting the best deal when you don’t know what they would be until submitting an application to a lender.
I do not think this is relevant to the underwriting of a case, it is more relevant only to the pricing of a case, as generally someone’s borrowing power doesn’t change with the LTV until you get to the high 80 per cent LTV and over levels.
The first comment came in response to the article: It’s disingenuous for a broker with no personal cover to sell insurance – poll results.
Andrew Ducksbury added to the discussion, saying: “As life insurance is not compulsory, it is easy to see why customers don’t take it out.
“All you can do as an adviser is document the fact that you’ve mentioned, discussed and highlighted it and that the customer has rejected those recommendations. If you’re an adviser that does not mention it then you have left the door wide open for complaints.”
A sensible adage
Responding to the same article, Trying to be a Retired IFA, said: “Believe in it yourself, then advise others is a very sensible adage. It’s not a difficult issue if positioned correctly.
“When a client asks about a mortgage, the good adviser asks for their total budget, including everything from mortgage to insurances. However, a customer may not see the benefits once a mortgage has been discussed if it’s simply seen as added costs.
“If that means the client has to cut back on the mortgage size a bit, then that is the sensible way to go,” they added.
Trying to be a Retired IFA, continued: “It’s a different outcome if the adviser skis uphill, so once the mortgage is sold the adviser then talks about more expense, such as insurances for things the client thinks won’t happen, but the seasoned adviser knows will.
“It’s beggars belief that the regulator requires stress testing for a mortgagor’s ability to pay a higher rate of interest but not if their income stops due to health or death or a partner.”
Interest-only foresight
Ros Edwards reacted to the article: Lenders miss out by not selling interest-only mortgages to low-income borrowers – Star Letter 12/02/2021.
Edwards said: “Interest–only mortgages are great at the start and a nightmare at the end. A huge number of interest–only borrowers have the ‘I’ll worry how I’m going to pay it back nearer the time’ attitude.
“When nearer the time approaches and the nightmare begins, such as falling houses prices or poor performing investments, they then blame the adviser.”
But in a calmer market, advisers would have the time to identify business opportunities that deserve the most attention, rather than those demanding it.
So this week, Mortgage Solutions is asking: Have you decided what area of business you want to focus on or diversify into once the market settles?
Akhil Mair, managing director of Our Mortgage Broker
To be honest with you, we focus on all sorts anyway so I’m not sure the pandemic has changed very much of that.
We are not really going to change our focus as it remains on all parts of mortgage finance.
But what we might want to do is spend more time asking clients questions about life insurance.
Some of our furloughed clients did not have relevant income protection or other applicable insurances that would have helped to save them from repossessions and displacement.
So that’s one area that would make sense to look into further – the different kinds of insurance available to our clients.
With regards to mortgages, we may want to do more bridging finance. There will be weird and wonderful properties coming up and onto the market via repossessions or people who just want to sell off their portfolios quickly.
So we will focus on bridging as a product area alongside enhancing our time and effort spent advising on insurance.
Martin Wade, director of Access Equity Release
As a company that took pride in its face-to-face delivery of advice, we have had to learn new skills and embrace new technology and we very much believe that this is here to stay.
We are of course looking forward to the ability to see all clients in person, but we understand there will be people who no longer want this and where for all sorts of reasons it just isn’t possible.
The diversification we seek is on mastering different delivery methods for advice. Phone and Zoom are a given but the process of advising this way necessitates a change in delivery and approach.
Equity release is by its very nature a fully advised process and one which, whilst not irreversible, should always be viewed as a lifetime event.
Vulnerability presents itself in many ways, not just physical or mental, but also through outside influences and perhaps the lack of ability by some to comprehend planning. This might feasibly embrace a period of 25 years or longer.
Sat face–to–face with a client, it is easier to spot concerns or hesitations. Some of these nuances are less readily spotted over Zoom and even harder to see over the phone.
We are therefore building skills in our advisers and enhancing our advice process which embraces all of the core values of the Equity Release Council’s adviser checklist and Statement of Principles and develops the ability to communicate clearly and concisely without always having the benefit of physical appointments.
Jonathan Clark, partner and mortgage and protection planner at Chadney Bulgin
Like most brokers, Chadney Bulgin’s 2020 meant an almost overnight switch from ‘famine to feast’ which while welcome, proved challenging.
As is often the case, the sudden surge in mortgage applications meant that some of our busier advisers ‘dropped the ball’ on protection, end of rate reviews and ancillary products such as general insurance.
As a well-established firm with 28 years’ worth of clients, it’s more important than ever that these clients are serviced properly which means a thorough assessment of their potential protection needs at the outset, a timely reminder and review of their options as their rate expiry approaches and offering them appropriate add-ons such as general insurance.
Losing this business to a competitor is inexcusable, especially as we’ve started to see lenders be a bit more proactive in retaining customers at rate end, sometimes taking the business from right under the nose of the busy broker.
In terms of new areas of business, we have noticed a steady increase in the maturity of existing interest-only mortgages where an insufficient repayment strategy is in place.
This presents more complex advice needs such as considering retirement interest-only or even equity release mortgage products, but only after other options such as downsizing have also been explored.
All our advisers carry the qualifications necessary to advise on this area, but specialist training is essential to maintain up to date knowledge of products and criteria.
Not to mention the complexities and sensitivities that such cases can present – we all know the Financial Conduct Authority’s view on advisers that ‘dabble’ in this market.
Led by CEO Mark Harris, the other advisers who have been sober since the 1 January for charity include Marcus Hodges, Cristian Hintzpeter, Wendy Docherty, Nancy Maher-Brill, Holly Budd and Simon Dexter.
The two charities include Macmillan cancer support and the Princess Alexandra children’s hospital in Harlow.
The seven participants have signed up to a significant penalty scheme of £1,000 to each charity, or £5,000 for Mark Harris, if anyone tumbles off the wagon before 1 April.
Mark Harris, CEO at SPF Private Clients said: “If you’re ever going to do it, it’s now or never isn’t it?”
adding that he had total faith in the team’s honesty over lapses.
“Non-alcoholic gin and tonic and 0 pe rcent lager have been keeping the teams going so far although it’s been mint tea for me. But if you can’t trust a mortgage broker, who can you trust?”
To show support and boost the fundraising drive please donate to either of the charities via JustGiving.com here for Macmillan Cancer Support or here for the Princess Alexandra children’s hospital.
The first comment was from Mrsval in response to the article: Banks loosen interest-only mortgage terms but borrowers in the dark
They said: “Why are only high-income earners considered? There are millions of older homeowners with homes that are only worth £100,000 so these poor folk are being ignored.
“Yet these will be the older folks who will be in the majority wanting and needing a retirement interest-only (RIO) mortgage.”
Mrsval added: “What will the banks do for them? The banks, by ignoring these customers stand to lose billions of pounds if these potential customers downsize rather than giving them more business.”
Self-employed fairness
Derek responded to the article: Self-employed borrowers need intelligence and empathy from lenders – JLM
Derek said: “The Financial Conduct Authority say ‘treat customers fairly’, that is all we ask for self-employed clients. Not one rule for employed and another for self-employed.
“I would like to see lenders that are developing this type of dual lending policy to be investigated to identify if clients with equal income and risk levels are being treated the same.”
Payment deferment not needed for all
Arron Bardoe reacted to the article: Two-fifths of mortgage holiday borrowers would have struggled without payment breaks – FCA
He said: “On the flip, is the survey saying six in 10 did not need the payment deferment?
“It was not a ‘holiday’ and I suspect both the government and press calling it such led many people to take it without realising the implications. Lenders were deluged so did not have time to check every case.”
Buyer demand has kept the property sector exceptionally busy and driven house prices up. But speculation that house prices will fall once the dust has settled could mean the market becomes friendlier to first-time buyers later in the year.
So this week, Mortgage Solutions is asking: Have your first-time buyer clients hinted at waiting until the market calms down to make a purchase?
Rachel Dixon, mortgage adviser at RH Dixon
Since January, my first-time buyer enquiries have outweighed any other type of enquiries that I’ve been having.
I feel that many first-time buyers have been waiting in the wings for high loan to value (LTV) mortgages to return, and they’re now back out in full force.
What I have noticed especially in my area is that multiple first-time buyers are chasing the same property which has meant that sellers have achieved their asking price. I’m certainly not seeing or being asked if the house prices will drop.
Whilst there is optimism, we certainly have a market.
Moving forward into Q2, we really need to see how the rest of the market reacts.
I think it’s highly likely that first-time buyer enquiries may well outstrip the demand and property supply could be an issue.
There is certainly the appetite for them to get onto the property ladder, we just need the supply of properties in order for this to happen.
The return of high LTV lending is good news but I would like to see a few more lenders back at 90 per cent LTV for flats and apartments as this is where many first-time buyers look for their first home.
Sam Murphy, founder of Mortgage Medics
January is historically a month in which we receive an increased number of enquiries from first-time buyers.
This year we saw 64 per cent of new enquiries coming from first-time buyers which is significantly more than we saw in Q3 and Q4 last year, and more than we typically see in January.
The re-introduction of high LTV mortgages has also boosted confidence.
When the first lockdown sent the market into chaos, those with smaller deposits were most disadvantaged as 90 per cent and 95 per cent LTV mortgages disappeared almost overnight and interest rates at 80 per cent and 85 per cent increased significantly.
This caused many first-time buyers to shelve their home ownership plans until the high LTV market showed signs of recovery.
We’ve definitely seen signs of this recovery in recent weeks with many lenders returning to the high LTV space and income criteria relaxing a little as some lenders start accepting bonus, overtime and commission again.
We haven’t heard of potential price drops influencing many prospective FTBs.
The future of house prices is impossible to predict, but what we can tell our clients from previous cycles is that when house prices dip, the availability of high LTV lending reduces and the cost of the options that remain often increase.
For those thinking house prices will dip in Q2 I’d warn that the availability of lending, or lack thereof, might mean you can’t take advantage of ‘cheap’ property prices.
Looking at the bigger picture, the demand for housing and homeownership has historically caused house prices to recover relatively quickly. Whilst we can’t always rely on past performance when it comes to the future, it’s hard to imagine a situation where house price inflation remains flat or negative for a sustained period of time.
Then again, if 2020 taught us anything it’s that you shouldn’t rule out the improbable too quickly.
Andrew Nicolaides, director of Elite Mortgage Finance
I have had a bit of a mix. Some first-time buyers are struggling to find competitively priced properties due to the high demand of buyers looking to complete before the stamp duty holiday deadline.
This has driven the property prices higher which would in a way cancel any potential stamp duty saving. The other issue we are having in the current market is that valuers are down valuing the properties because, due to the demand, they are selling above market value.
I wouldn’t say that the return of high LTV mortgages has given first-time buyers the confidence to proceed with purchase plans.
I would say that by offering higher LTV mortgages there are more purchasers able to obtain a mortgage especially in London where the average flat price is £558,686, as quoted by Rightmove.
With a 10 per cent deposit a purchaser would need £55,869 compared to a 15 per cent deposit of £83,803 which is a substantial difference.
The possibility of price drops has inspired first-time buyers to wait for that to happen.
I have also been advising my clients not to rush to purchase a property now unless they feel it’s the right property for them, and they are prepared to pay slightly more to obtain it.
I feel that after the 31 March, unless the government extends the stamp duty holiday, we will start to see property prices dropping.
Lots of people are struggling financially due to the pandemic and with the furlough scheme ending in April I believe that there will be more property coming on the market for sale.
John Phillips, national operations director of Just Mortgages and Spicerhaart 
Rupi Hunjan, CEO and founder of Censeo Financial 
Richard Campo, managing director of Rose Capital Partners 
