"With the proper underwriting and checks taken, there is no doubting that some first-timers would benefit within a 100% LTV mortgage structure. "
According to the NAEA, when it comes to the proportion of sales first-time buyers accounted for, this fell from 26% last year to 25% in 2018. Not a great deal of difference you might think but, given the level of resource and support centred on the first-time buyer market, it seems rather odd to have agents selling less to first-timers this year, compared to last.
Certainly, when you look at the overall figures for purchase activity during the year, you can see that we are hardly surfing the crest of a wave at present. Indeed, the same NAEA figures show that the number of properties sold per agency branch each month fell from nine to eight – with buy-to-let landlords less likely to purchase, second-steppers not being able to move up the ladder due to price increases, and first-timers having a number of obstacles to overcome, then the agent’s lot does not appear to be a happy one at present.
Returning to first-timers, one can’t help feel that there has been something of a shift, particularly amongst the large, mainstream mortgage lenders, which is impacting on the number of first-timers purchasing. Despite Government support – the lack of stamp duty below £300k, the continuation of the Help to Buy Scheme, etc – without lenders willing to actively participate in this space, we are never going to see the numbers of buyers that politicians and the rest of the industry wants to see.
At present, most seem willing to lend to first-time buyers but only if they have the financial support of the Bank of Mum & Dad (BOMAD), either through gifted cash upfront for a deposit, or a guarantor arrangement. Indeed, lenders seem to be bending over backward to bring products to market which require a family-support mechanism, but unwilling to develop their offering for those potential borrowers who simply do not have that luxury.
So, we find that those first-timers who can’t be supported by BOMAD – who already have significant housing costs in the form of their rental properties – at best can only save for smaller deposits, despite the fact that they might pay more in rent than a potential mortgage and should be viewed as a risk worth taking in terms of their ability to afford the mortgage.
It’s perhaps no wonder that the debate around 100% LTV mortgages has reignited again, and I’m fully aware that this polarises the marketplace, but I’m of the opinion that with the proper underwriting and checks taken, there is no doubting that some first-timers would benefit within a 100% LTV mortgage structure. And, I also think, that we may be far too fixated on a 5/10% deposit anyway, which is likely to be many thousands of pounds, even in areas where house prices are relatively modest.
Clearly this level of deposit takes time to save, which makes me wonder whether such requirements are fit for purpose. If not zero-deposit loans, then what about a half-way house, perhaps the equivalent of 12 months’ mortgage payments as a deposit? Why are we so fixated on a deposit level which seems incredibly arbitrary in this day and age? After all, a 5% deposit five years ago was far less than a 5% deposit now.
And, if we are concerned about the ‘risk’ first-timers bring with them, then what about more of a focus on long-term fixes for this borrower community? Lenders could be offering far longer-term deals – with some notable caveats in terms of ERCs, changing circumstances, etc – which provide an underwriting opportunity which is not all about the borrower meeting another somewhat arbitrary stress test. If they are willing to commit to a longer-term fixed product, perhaps we should be able to provide a much larger degree of flexibility in terms of them meeting the current requirements, which (to my mind) seem far too onerous in today’s market.
I’m fully aware of why these rules were put into place however we must also recognise that if they are so stringent as to stop people getting on the housing ladder and/or contribute to an abnormally subdued market, then they need to be reviewed and reworked. They should allow lenders to present options for those who might not fit the ‘new normal’, otherwise we are in danger of severely hampering the market for a whole generation of would-be purchasers. That is in no-one’s interest and we should seek to avert such a situation with great haste.
