First-time buyers aren’t used to hearing good news. For years, headline after headline has reminded them just how much of an uphill struggle it is to get on the housing ladder.
But over the past few months, a political and regulatory drive to boost the housing market has offered aspiring homeowners genuine cause for optimism.
Let’s take these developments one by one, starting with the Government’s decision to make permanent the mortgage guarantee scheme, which aims to increase lenders’ capacity and appetite for high-LTV lending by mitigating a key element of their exposure in the event of default.
While on the surface this may seem like a simple reincarnation of an existing policy, its significance is enormous. Without it, history suggests there would be far fewer options available to first-time buyers.
At the end of 2020, there were just eight products available to borrowers with a 5% deposit, according to Moneyfacts. However, since the mortgage guarantee scheme’s launch in April 2021, the picture has transformed. At the last count, there were 442 products on the market. That’s no coincidence.
This explosion in choice means borrowers with smaller deposits face a far less restrictive mortgage market, with increased competition helping to keep pricing keen.
At the same time, regulatory developments are of course loosening constraints on borrowing capacity.
In March, the FCA reminded lenders of the flexibility in its affordability rules and warned that some firms were “unnecessarily restricting access to otherwise affordable mortgages” by applying overly strict stress tests. Many lenders had been using a ‘standard variable rate plus 1%’ approach.
The updated guidance encourages a more tailored, risk-based approach, and a number of major high-street lenders – including Halifax, NatWest and Nationwide – have since adjusted their stress testing, allowing borrowers to borrow up to £40,000 more in some cases.
Estate agent Savills believes this development alone could boost first-time buyer transactions by up to 24% over the next five years.
Another long-standing brake on lending is the cap on high loan-to-income (LTI) borrowing, which states that no more than 15% of a lender’s new residential mortgages can be at an LTI of 4.5 times income or more.
Recently, however, the Prudential Regulation Authority (PRA) has allowed lenders to apply for a “modification by consent” to temporarily lift this cap while it reviews the policy.
This means lenders can now advance a greater share of high-LTI loans, potentially giving some first-time buyers the extra borrowing power needed to get on the ladder.
Looking ahead, the FCA’s DP25/2 discussion paper is exploring a range of potential new measures that could benefit first-time buyers. These include incorporating rental payments into affordability assessments, introducing differentiated affordability assessments to account for a borrower’s career trajectory and more flexible rules for interest-only mortgages.
Of course, there’s more to be done. While regulators and politicians are pursuing growth – a move we welcome – the root of many first-time buyer challenges is that we still don’t build enough homes in the UK.
The government’s target of 1.5 million new homes this parliament is admirable, but it is highly likely to be undershot. Without a significant increase in supply, prices will remain under pressure, limiting genuine improvements in long-term affordability.
So no, this is not quite a ‘golden age’ for first-time buyers. But conditions are improving greatly. A combination of a vastly expanded product choice, greater regulatory flexibility and supportive government policy means brokers will be able to help more first-time buyers than at any point in recent memory.
The key will be to communicate the positive momentum to customers while managing expectations about affordability and deposits.
Advisers who do this well will not only help more people achieve their homeownership ambitions but will also cement their reputation as trusted guides in a market undergoing meaningful change.
