However, according to a seminar presented by Hometrack’s Richard Donnell at the Mortgage and Protection Senate this month, first-time buyers with small deposits are struggling with strict affordability requirements imposed on lenders by the FCA. The independent Redfern Review, published last week, has also suggested that affordability for first-time buyers drastically needs to be addressed.
This week we’ve asked our panel of brokers to share their thoughts on the first-time buyer market and tell us what products out there are really helping their clients, or if Donnell is right, and regulation has turned the market into a 85% LTV playing field.
Stuart Gregory, managing dirctor, Lentune Mortgage Consultancy, says a drastic rethink of the first-time buyers’ affordability assessment is needed, with many aspiring homeowners already paying large sums on monthly rental payments, therefore demonstrating their ability to repay a mortgage.
Paul Flavin, owner, Zing Mortgages, believes the attitude to homeownership has shifted significantly since the age of the baby boomer and suggests that limitations on credit reliance could be introduced to improve affordability.
Chris Hall, operations director at Mortgage Guardian and mortgage adviser at 1st Call 4 Mortgages, adds that lenders are making significant headway in offering products to first-time buyers that suit a range of needs, which he says all brokers should be aware of.
Stuart Gregory is managing director at Lentune Mortgage Consultancy
As a broker, it’s important to help first-time buyers with advice and guidance. By offering guidance as well as advice, brokers can help by checking the clients’ understanding of the home buying process and finding out the most suitable way of dealing with their circumstances.
For first-time buyers it is very important that they are fully informed on how lenders will assess them, but we do not need a situation where over-regulation becomes the issue.
I’ve long been an advocate for lenders having the flexibility to take into account existing rental payments paid by first-time buyers when assessing them for a mortgage. It makes perfect sense; if a first-time buyer is able to maintain a rental agreement of £800 per calendar month and mortgage costs amount to £650 per calendar month, then they should not be overlooked in the underwriting process.
Lenders are naturally more cautious with first-time buyers, and also for loans with lower deposits. However, there becomes a tipping point where regulatory guidance begins to hold the market back, rather than strengthening it.
I appreciate that it’s a tough job, but something sensible needs to be agreed; there’s no point having lenders who can, in theory, offer 95% lending if the statistics end up showing that most are declined when assessed.
Shared ownership is one way to help, but where are the developments providing the volume of units we need? Specific developments for first-time buyers are needed, and urgently.
In the town where we are located, the last wholesale plan to provide lower cost housing was in 1982. That unfortunately, tells you all you need to know.
Paul Flavin is owner of Zing Mortgages
As a Sixties baby boomer, I was born into a family environment where home ownership was seen as a status symbol. It was drummed into me from an early age to invest your money into bricks and mortar, but this was at a time when parents’ memories were still filled with a much less plentiful post-war era.
It was also a time when only people looking to follow a profession went to university. You left school, either got an apprenticeship, or a friend or family member found you a job at the company where they were employed. You would see adverts for second hand cars stating ‘house purchase forces sale’, showing the lengths people would go to achieve homeownership.
Fast forward now to the present batch of 25 to 35 year olds and the background is very different. They have generally grown up in more affluent times, attended university or have friends who have attended university, where the idea of renting has been given credence. Gap years and travelling are more common and defined career paths aren’t established so early on. People also get married and have children later. This means that the pressure and status of homeownership no longer exists and the taboo of renting has been smashed. It’s now far more acceptable to rent, to be more transient with work and to establish a career path later in life.
It’s also a world of instant gratification. If you want something don’t worry about saving for it, just have it and put the cost on a credit card or loan. Perhaps the approach should change? First-time buyers are making a genuine effort to purchase an asset which will increase in value over the long term, but getting on the property ladder is made hard for them, sometimes impossible, if they can only raise a small deposit. How about making their lives easier and concentrating economic policy on making credit harder to obtain through loans and credit cards? This would lower monthly financial commitments as well as reducing reliance on credit, which must be a good thing.
Yes, the statistics confirm what is happening to the first-time buyer and I 100% agree that, for those wishing to purchase their own home the new stress tests have made the entry bar harder to achieve. But, and it’s a big but, I do also feel that some of the people not purchasing have made an informed choice not to, delaying that leap until they are at a time and place in their life when they are ready to settle down.
Enviably perhaps, some of the current batch of potential first-time buyers do choose living life to the full over homeownership.
Chris Hall, operations director at Mortgage Guardian and mortgage adviser at 1st Call 4 Mortgages
When meeting first-time buyers there is always a necessity to ascertain their current circumstances fully. There are several potential deal breakers in the mortgage process with affordability being the main hurdle closely followed by size of deposit.
Hometrack’s recent research suggests that the first-time buyer market is an 85% LTV playing field and while this may be true for the core of borrowers, it is not always a one size fits all situation. Many lenders are now stepping up to the mark looking at creative ways to break down the barriers of homeownership. Mortgage brokers must know what is available through mortgage lenders and government backed schemes to assist first-time buyers.
Landlords who are looking to offload property after recent government clampdowns can potentially sell to their tenants without them needing a deposit courtesy of Nationwide. Barclays offers a family springboard mortgage if the first-time buyer can find a helper to put down the equivalent of 10% deposit into a savings account. Several lenders will now offer a collateral charge facility on a family members home. In the affordability stakes, the Bath BS offers a rent a room mortgage but also some lenders are more generous when calculating affordability. Increasing term can help if borrowers who are relatively young and the new stamp duty threshold certainly helps.
Shared ownership is nothing new but complexity over buying a home the conventional way does not make these schemes more popular. Right to Buy and Help to Buy as well as gifted deposit schemes are available as well as guarantor mortgages.
It is tough for first-time buyers, as saving a sufficient deposit can seem an impossibility. Inevitably some people who sit down in front of you will not qualify for a mortgage. Be honest with them and perhaps tell them what they can do to qualify. It gives hope as buying a house is both a financial and emotional journey.
