The first-time buyer dilemma…


Joe Wall

Well, we’re certainly in very interesting times! I’ve been in the industry since 1984 when Apple first released the Mac, Band Aid recorded ‘Do they know it’s Christmas’, Torvill & Dean won Gold in the winter Olympics and Prince Harry was born, but I’ve never seen anything like what’s happened over the last few months!

Due to COVID-19, we’ve had businesses unable to trade, valuers unable to carry out physical valuations, numerous mortgage products withdrawn, LTVs restricted and lenders having to re-assess what cases they’re able to lend on. We’ve had millions of workers furloughed (who had ever heard that word used before March?) and Government schemes set up to help the furloughed workers and self-employed through an imposed lockdown period. At the beginning of the year, I’m sure we all had great expectations for 2020 but this has rapidly turned into a year of uncertainty, not only for financial services but for the whole world.

What I’ve seen is that there seems to be resilience in this mortgage market. Lenders and brokers seem to have been innovative and adapted quickly to an ever changing and challenging environment.

The mortgage market seems to be busier than it has been for some time with increasing numbers of customers, possibly wanting to take advantage of the stamp duty holiday and low interest rates, among them will be First Time Buyers.

The number of First Time Buyers has been increasing since 2016 with just over 355,000 buyers looking to purchase their first home in 2019.

There are many questions for First Time Buyers to consider when buying a property, but I think the most common ones are, ‘how much deposit will I need, and will I meet the lender’s affordability criteria?’. In 2019 the average deposit for a First Time Buyer according to the Office of National Statistics was £46,200. And when we look at London, the average deposit is higher at almost £110,000.

This is all before you factor in a world-wide pandemic, and the challenges increase tenfold. First Time Buyers will generally have a smaller deposit and so higher LTV products are the order of the day, but as we all know a combination of risk and capacity due to the current pandemic is, in the main, restricting LTVs to 85% or lower at the moment resulting in First Time Buyers having to stump up even more deposit.

So, what options could be available? To name a few:

  • Bank of Mum & Dad (BoMaD) according to research performed by Legal and General in 2019, due to the volume of money contributed towards helping loved ones get on the property ladder, if ranked as a lender BoMaD would be the 11th largest lender in the UK. On a serious note though, most lenders will accept a family gifted deposit, so this is most definitely a viable option for those struggling to raise the required funds themselves.
  • Help to Buy could also be an option for those who dream of owning a brand new house. With up to 20% (15% in Scotland) funded by way of a government equity loan, this could be a way to solve the deposit issue as the customer is only required to provide a 5% deposit.
  • Shared Ownership is another way First Time Buyers with a smaller deposit could move on to the property ladder, buying a percentage of the property and paying rent to a housing association or local authority for the remaining percentage share, with the option to increase their percentage ownership in the future.
  • Joint Borrower, Sole Proprietor which enables parents or another party to assist the occupier who perhaps cannot quite afford to buy a house without some help. A mortgage designed to allow other persons to be party to and liable for to the mortgage, thus adding their incomes to increase affordability, without legally owning the property.
  • Family assist mortgages are a way for family members to use their own savings to help their family members purchase their own home without gifting deposit. Depending on the lender, they’re required to save an agreed percentage amount of the property purchase price in a deposit account with the lender for a set period of time, meaning the buyer is not required to fund a deposit. The idea is that the mortgage holder will reduce the mortgage amount by the amount in the savings account thus lowering the LTV of the mortgage.
  • Scottish First Home Fund is an equity share scheme which can provide equity loans up to a maximum of £25,000. Uniquely this is available on both New Build homes and second-hand property for First Time Buyers in Scotland – another way to help customers buy their dream home.

And…. Not forgetting Government backed savings schemes such as the Lifetime ISA designed to encourage people to save for either a deposit to help purchase their first home or for their retirement. It could be good for customers who can save for a deposit due to the 25% government bonus, however, any withdrawals within the first 12 months of the first payment into a Lifetime ISA will incur a 25% government charge (20% between 6 March 2020 and 5 April 2021). After that, the customer can withdraw money to buy their first home, but if they withdraw for any other reason before they reach 60, the government withdrawal charge will apply (unless you're diagnosed with a terminal illness). So, it’s worth considering all points.

I talked previously about the lack of higher LTV products and of course a return to higher LTV lending across the industry would be welcomed by customers and brokers alike. But there are other options available which could help First Time Buyers as I’ve mentioned.

I think what all customers and home buyers need right now, including First Time Buyers, is good solid advice and with intermediaries still delivering over two thirds of the mortgage business in this market, I believe it’s an opportunity for brokers to really show their worth, using their industry knowledge to find alternative options for their customers.

A pandemic is completely out of everyone’s sphere of influence – there’s nothing we can do about it. But what we can aim to do, is to continue to provide the best service and advice we can to customers and look for ways to continue to help people buy homes. The great news is that Skipton could help with most of the options we’ve talked about (apart from Family Assist mortgages and First Home Funds) as we strive to help brokers support their First Time Buyer clients. After all our purpose as a building society is to provide a safe place for customers savings and to help people buy a home.

These views are Joe’s own.

Joe Wall
Business Development Manager
October 2020
All information correct at time of publish.

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