Mortgage article on First Time Buyers

With house prices soaring in recent years, inflation dangerously outstripping salary increases, and the cost of renting becoming more expensive than ever, being able to save a deposit is quite frankly impossible for the majority of first time buyers. The 'Bank of Mum and Dad' would, if it were a mortgage provider, be the fifth highest in terms of lending across all banks in the UK mortgage market according to recent reports, and this highlights the vital importance of family helping younger generations through gifted deposits to enable them to get on to the property ladder. The positive we can take is that many lenders are still showing a real appetite to lend to first-time buyers with a 5%-10% deposit. Interest rates at this end of the market have remained steady, and with positive affordability changes around the corner following the announcement to scrap mortgage affordability rules as of 1st August, it should put many first time buyers in a much better position to finally get on to the property ladder in the coming months.

Almost all of our first-time buyer clients are using a gifted deposit now, with many using schemes such as Joint Borrower Sole Proprietor to get onto the property ladder with help from the Bank of Mum and Dad. The main thing helping first time borrowers borrow more recently has been schemes such as Nationwide's Helping Hand. With rapidly rising rental costs, I can see more parents releasing equity from their homes in order to provide deposits to their children going forward.

The point we always miss in any conversation about first-time buyers is that the alternative option of renting is just so expensive now that even in a world where rates have steadily increased for the past 6 months, it's still cheaper to buy than rent. That means the aspiration to own your own home is as strong as ever, if not more so. Seriously, go on Rightmove and look at renting a property near you. It's terrifying. Other than that, is it any different to what we're used to? Not really. There are plenty of 5% deposit products out there but the challenge will be actually saving that deposit in a cost of living crisis that will make it impossible for many. It's pretty scandalous that whether you can get on the property ladder often depends on how well funded your own branch of the Bank of Mum and Dad is.

The positives to be had in a rather bleak mortgage market is we've seen a full return to higher loan-to-value products become available for clients with smaller deposits. What remains a concern though is house price growth still outstripping wage growth and making the gap between owning a home even larger. With the help-to-buy scheme soon to disappear, the options for first-time buyers will certainly reduce in the months to come. Some form of gifted deposit is now the new norm with most first-time buyers, with house prices growing at such a fast pace over the past two years many savers haven't been able to save at the same pace as this growth and more and more people are leaning on family support. Nationwide's Helping hand scheme has been a welcome addition to the mortgage market, which allowed a certain group of buyers to borrow more than what they typically could. However, there is still a huge percentage of people who are being left behind. A quality broker is key in helping first-time buyers get onto the housing ladder. With rates changing so frequently, customers need someone that is agile who can proceed with an application ASAP. Instead of waiting days/weeks for an appointment with a bank, which could see that deal they saw online being withdrawn prior to even being seen. Brokers will often go above and beyond and provide a handholding service of helping their clients through every step of the journey to keep the stress and worry to a minimum.

First Time Buyers will continue to buy as long as it's affordable. The Bank of Mum and Dad will continue to assist where they can and some family members are now utilising Later Life Lending to assist with the deposit, sort of fast-forwarding a future inheritance to help their children now, when they really need it.

Deposits are always the biggest challenge for first-time buyers but it's important to get the right advice from a broker so they can buy their first home and search the whole market. Nationwide offer a market-leading product where multiples of income are 5.5 and they only require a 5% deposit on certain properties. Even if 'Bank of Mum and Dad' do not want to contribute to the deposit, they can look at a 'joint borrower-sole proprietor mortgage', which means they effectively guarantor the mortgage. Lenders are still lending and interest rates are still lower for low-deposit mortgages when compared to the start of the COVID pandemic. If you want to buy a home, you can afford it, and have the right deposit, it's still a great time to buy.

Even though rates continue to climb, it’s still significantly cheaper to buy than rent. As long as this remains the case, demand from first-time buyers will stay strong, but the problem remains the lack of supply and lack of deposit. Some will argue that there is a lack of product innovation, which is partly true, but with the likes of Generation Home, Keyzy, Even and Ahauz (to name a few) having either launched or launching soon, there is hope. On the flip side, FTB’s will be significantly disadvantaged by the loss of help-to-buy, there’s no arguing that, but deposit unlock, first homes and Market Mortgage will part fill the void. I’d also argue criteria have improved at 95% too, offering FTBs previously locked out some options. It’s certainly not all doom and gloom and increasingly new lenders and new innovations are slowly helping to untap the pent-up demand. I’ve long felt that if a first-time buyer was aware of everything available to them in the market place (mortgage education) then many more would buy.

What's it like for first time buyers at the moment... Its hard, where many get some from of assistance with their deposit from family there is still a large percentage of buyers who dont. With help to buy coming to an end in October it will be interesting to see what the government bring in to help, but even with help to buy a 5% deposit is needed, where many FTB are renting, even 5% can be a tough task

• What is the overall picture like for FTBs? I appreciate it's a tough market for buyers with the increase in property prices in recent years, and now rising interest rates. But are there any positives we can draw on- ie are there more mortgage deals now available at higher LTVs than a few years ago. I agree it is a tough market for FTBs with increasing property prices and higher living costs. One main positive we can draw on is the innovative ideas from lenders that have come out of this FTB struggle, such as equity loan lenders that can work along side your standard banks and lenders with products such as deposit boosters where the family can lend money to the FTB but keep their deposit protected and have an agreement in place that this will be repaid to them at the end of the mortgage term. High income multiples for first time buyers such as natwest helping hand are also very popular amount FTBs. • Are family or guarantor mortgages popular among FTBs? Yes, but even more so are the lenders higher income multiples for FTBs • Are significant numbers of FTBs using 'gifted' deposits, perhaps form property gains made by parents/ grandparents? Yes in 99% of the mortgages I do for FTBs the deposit has been at least partially gifted. • Are there other product innovations helping FTBs? Higher income multiples being offered by lenders, deposit boosters and affordability boosters offered by lenders that specialise in helping those get on the ladder, notably 'Generation Homes'. Equity loan lenders such as 'Even', who provide the clients an equity loan to use on top of their deposit, similar to Help To Buy • How can brokers help FTBs source an appropriate deal? Get all the information you can from the clients regarding their income and affordability. Do they get overtime? How regular is this? Do they have a second income? Side hussle - and things that can be used should be. Get a copy of the clients credit reports, review this to see if it would be beneficial to pay off any credit cards loans etc