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Can lenders innovate enough to help first-time buyers?

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Recent evidence suggests first-time buyers’ behaviour and product preferences are changing as house prices still remains unaffordable for too many.

According to the CML, more first-time buyers are taking out mortgages with longer terms in order to spread out repayments.

Data shows 60 per cent of FTBs are now opting for terms spanning more than 25 years, and with first-timers now buying at the age of 31 on average, some may be left paying off their debt in retirement.

With house price growth outpacing income growth, loan-to-income ratios have risen and tougher affordability requirements can mean borrowers may simply have insufficient annual income to support anything other than a longer term mortgage, even though that means paying far more in interest over the life of the loan.

However it is some comfort to see FTBs still able to get mortgage offers.

Lenders are still confident that, as a market, FTBs have the best overall growth prospects for 2016, according to IMLA’s Intermediary Lending Outlook research earlier this year.

This confidence is opening up doors for further activity and innovation in this particular segment, for example, with a rise in the number of high LTV products offering lower deposits, as well as the introduction of intergenerational mortgages and products enabling family members to offer-up a helping hand.

Lenders are innovating to support FTBs within a tightened regulatory framework, but FTB issues cannot be resolved by the mortgage industry alone.

There are concerns the recovery in the LTV market might be reversed once the Help to Buy mortgage guarantee scheme is withdrawn by the government in six months’ time, while house price growth continues to stretch affordability.

Lenders and brokers are plugging away to make mortgages work for FTBs. What’s missing now is out of their hands: a clear and coherent root-and-branch review and restatement of housing policy with clarity about the role of the different initiatives aimed at FTBs.

Lenders have to decide what to prioritise in lending terms and which of the many schemes to support. Can the government help diminish the fog?

Peter Williams is executive director at the Intermediary Mortgage Lenders Association

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