Supporting first-time buyers during a challenging time

“Despite the challenges that remain for some, we’re confident the worst is behind us.”
The increase in house prices, lack of availability of higher LTV mortgages, and the knock-on effects of the pandemic have all contributed to a perfect turmoil for those hoping to purchase their first home over the past year. There is no secret that people have found it extremely tough to get a foothold in the housing market, but 2020 added another hurdle of complexity and for some, may have pushed their homeownership dream even further out of reach.
The biggest challenges facing many first-time buyers is having to save such a large deposit. The market had hundreds of 5% deposit mortgages not much more than a year ago, but as Covid hit, the first casualties were them and 90% LTV mortgages. Causing people needing to save for longer or save more sooner – a tough ask in the current economic climate. We witnessed furlough, redundancies and unemployment figures all rise, leaving some eating into savings which may otherwise have been used to take that first step towards owning their own home.
There has also long been issues with affordability. The current regulatory stress testing requirements force many first-time buyers out of the market, despite the fact their monthly rental payments are likely far greater than a mortgage payment would be. To open homeownership up to more people – for those who want and could responsibly afford a mortgage – we strongly believe this is an area the industry needs to address.
In contrast, the pandemic brought opportunity for people to save, with reports suggesting households may have an average of £14,000 banked in the last year through lack of commuting costs and limited spending and socialising. This may lead to people being ready to buy earlier than they thought, but amid the stamp duty holiday frenzy and increasing house prices, a property they may previously have been able to buy could now be a stretch.
We’re also seeing preferences change – a house that suited prospective buyers a year ago, may no longer meet their needs. Estate agents and online property search sites have reported a rise in the number of users actively looking for a home since the government’s Budget announcement, which is great for stimulating the housing market, but could cause competition amongst buyers.
But despite the challenges that remain for some, we’re confident the worst is behind us. Six months ago, 90% LTV mortgages were scarce, yet we recently became the first lender back into the 95% market, and we’ve since seen other lenders join us in that space.
While it doesn’t address all the challenges first-time buyers face, it’s great news for brokers and their clients with smaller deposits, who, during the pandemic assumed they’d need to at least double their savings to stand a chance of taking that first step.
The current climate presents a fantastic opportunity for advisers to help. Buying a first home is a daunting prospect at the best of times, but for first-time buyers today it’s likely to feel even harder. Knowing where to look and how best to apply, how likely lenders are to be receptive to a case and who can progress to offer quickly, are all chances to make an impression that will last for many years to come. And with cases looking set to be more complex than ever as a result of changing circumstances, your input will be appreciated more than ever.