Although first-time buyers face a tougher market than their predecessors did, useful devices are available to assist them
There is an old joke popular among those who have been in the industry for a while: ‘When applying for your first mortgage, how do you stand? You don’t; you kneel.’
This refers to the days when owning a home was considered not a right but a hard-won aspiration. First-time buyers scrimped and saved, and went to their local building society manager to ask for a mortgage.
I was reminded of this recently following a report from the Building Societies Association, which highlighted how much the mortgage market had changed since those days. It focused largely on the need for more flexibility on lending in retirement, but it also laid out a future where first-time buyers would not step onto the property ladder until their late 30s or early 40s. This future is not too distant.
In fact, the report argued that it could be the reality just 13 years from now.
Meanwhile, separate research published recently by Legal & General suggests the so-called Bank of Mum and Dad is set to be the UK’s ninth-biggest mortgage lender by the end of this year, lending around £6.5bn.
These studies reiterate what brokers know all too well: after decades of the process of getting a mortgage becoming easier, it now requires more commitment, bigger deposits and better credit records than ever.
But getting on the ladder is still possible for a swathe of younger hopefuls, and brokers can pursue two useful avenues:
1. Second charges
The majority of Bank of Mum and Dad ‘lending’ consists of gifted deposits, but not every family is so fortunate – or liquid – as to have several thousand pounds to spare.
This is where second charges are worth their weight, particularly if parents are reluctant to give up incredibly low lifetime tracker rates obtained before the financial crisis. Second charge rates have dropped significantly over the past two years, as have fees. For smaller capital raises they are a viable and often competitive alternative to a remortgage, enabling parents and grandparents to give children a much needed helping hand into property ownership.
2. Help to Buy
The Government’s Help to Buy equity loan scheme will continue until at least 2020. The latest figures show that more than 259,000 people have bought a home using a Help to Buy scheme. Yet these loans still seem to be viewed as slightly second class, with many brokers not specialising in them.
Help to Buy is a critical component of the mortgage market and should be part of every broker’s arsenal to help first-time buyers. The scheme is available on new-build properties and, with the help of a five-year, interest-free, 20 per cent equity loan from the Government (40 per cent in London), borrowers with a 5 per cent deposit can benefit from the rock-bottom mortgage rates reserved for those taking a 75 per cent loan-to-value mortgage.
The high-street lenders have a range of deals but there are also options for borrowers with a less than perfect credit score.
These two tools to help first-time buyers are still regarded as specialist areas. However, with house prices higher than ever, wage growth still under pressure and inflation becoming less spectral each month, the financial reality facing first-time buyers is very different from that of just over a decade ago.
Brokers have always helped first-time buyers and, despite the tougher economic environment, this is still within their grasp. It just takes a little more imagination to get the finance sorted, but brokers have always been good at that.
Alan Cleary is managing director at Precise Mortgages