MortgagesMar 23 2021

First-time buyers should recognise current 'opportunities'

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First-time buyers should recognise current 'opportunities'
Pexels/Karolina Grabowska

According to the Resolution Foundation, younger workers have been one of the hardest hit groups during the pandemic, with a third of 18-24 year olds having lost their job or been placed on furlough. Furthermore, one in three of those in the same age group have seen their pay reduced as a result of the crisis, which is more than any other demographic.

The sad truth is that thousands of young people will now be in a much less stable position financially than they were before the pandemic. And for many, this will mean that their financial goals, such as buying their first home, have been pushed further out of reach.

While the crisis has brought about new hurdles for the first-time buyer community, there are reasons to be optimistic.

Indeed, further government support came in the form of a 95 per cent mortgage guarantee scheme in the chancellor’s latest Budget, with first-time buyers set to be the sole beneficiary. With several of the major banks confirmed to offer the scheme, this will go some way towards supporting a key customer segment with lending.

However, this will not be the only lifeline available to first-time buyers over the coming months, and it is important to recognise the other opportunities for this market.

Stamp duty’s impact on housing stock

The stamp duty holiday is on everyone’s minds at the moment. Launched in July last year, the measure has gone a long way towards stimulating the housing market after its spring hiatus, and the tapered extension announced in the March Budget will have been music to the ears of many buyers who are hoping to benefit from the tax cut before it ends.

The extension may also have a promising knock-on impact on the availability of suitable housing stock for first-time buyers. Research by Savills in January found that second-steppers were expected to lose out the most when the stamp duty holiday was originally due to end in March, with the tax break of particular benefit to this community.

However, with the new extension, more second-time buyers looking for larger properties may be encouraged to make their purchases before the tax cut ends, freeing up housing stock that is more suited to first-time buyers, such as one and two-bed flats.

Low deposit mortgages returning

Mortgage lenders, like many other businesses, have had to adapt to the economic uncertainty of Covid-19 to protect their service levels and satisfy risk appetite. To this end, many lenders restricted higher loan-to-value lending at the start of the pandemic, which presented challenges for first-time buyers who typically benefit the most from low deposit mortgages.

Even before the announcement of the government’s 95 per cent mortgage scheme, we were starting to see lenders return to the higher LTV market – an extremely promising sign for first-time buyers.

Competitive pricing and a variety of options meant that this community was benefiting once again from increased product choice. What is more, the momentum many lenders have already achieved in terms of reinstating product choice for first-time buyers is set to continue as more start to resume 95 per cent LTV lending.

Encouragingly, first-time buyers accounted for one-fifth (20.18 per cent) of all mortgage searches in January – an increase on figures seen in previous years – further highlighting that appetite among this community is returning as product choice improves. The government’s 95 per cent mortgage scheme will also go some way towards encouraging the major banks to step back into the high LTV market, which will further the momentum achieved in this space.

Other forms of govt support still available

What is also reassuring for first-time buyers is that other forms of government support are still available to help them raise the funds needed to purchase their first property.

The Help-to-Buy scheme, for example, has been hugely beneficial in supporting homebuyers since its launch in 2013. Indeed, more than 278,000 homes have been bought with a Help-to-Buy equity loan over this period, and 82 per cent of all purchases have been made by first-time buyers.

With a revised Help-to-Buy scheme now in place until 2023, there is no doubt that this will continue to be popular among first-time buyers. As this community grapples with the economic impact of the pandemic, it is likely that many prospective buyers will look for additional support over the coming years to help them with their property purchases. Help-to-Buy will play an increasingly important role here.

House deposits more achievable for some

The long-held challenge of saving enough for a house deposit has historically prevented many first-time buyers from purchasing their first home.

However, many young people in stable employment have been able to save their disposable income during this period. A decrease in spending as a result of lockdown restrictions has meant that younger workers have been able to set aside income they would have otherwise used for non-essential goods – something that has enabled some to save more for a house deposit.

Therefore, following the crisis, it is likely that some first-time buyers whose finances are in better shape than before the pandemic will be in a much stronger position to take their first steps onto the property ladder.

Growth of intergenerational lending

For others, saving for a deposit may have been made harder.

For this group, intergenerational lending could play an important role in helping them achieve their homeownership goals over the coming years. In 2020, more than half (56 per cent) of those aged under 35 received financial support from the 'bank of mum and dad', according to research from Legal & General.

When you look at recent data around property wealth in the UK, it is not surprising that many older homeowners have capitalised on their amassed housing equity to help children or grandchildren onto the property ladder. For example, older homeowners released £3.4bn in property wealth during 2020, and one in four (27 per cent) used more than a fifth of the proceeds of equity release (or £756m) to financially support family and friends.

It is likely that this trend of intergenerational lending will persist over the long term as younger generations emerge from the crisis in a more financially vulnerable position and asset-rich older relatives look to offer them a helping hand.  

Support with cladding

Cladding is likely to be another concern for first-time buyers with many lenders unable to offer mortgages on tens of thousands of homes due to cladding fears, and prospective buyers struggling to get the finance they need as a result.

While further government support should help to resolve the issue to a certain extent, lenders are also doing what they can to support customers in this position.

However, prospective buyers must ensure that the property they are looking to buy meets the requirements of current guidance from the Ministry of Housing, Communities and Local Government. Advisers will be particularly crucial in supporting customers in this area, ensuring that every purchase made is a safe one.

While the past 12 months have come with hard-hitting challenges for younger individuals, they have also presented new opportunities. To this end, lenders and advisers will be increasingly important in supporting first-time buyers with their decision-making and ensuring that they are knowledgeable about the various routes to homeownership.

Ultimately, buying a home is one of the biggest financial commitments that a person will make in their lifetime – particularly when it is their first property.

The co-operation of lenders and advisers will go a long way towards helping to instil the confidence this community needs to take their first steps onto the housing ladder.

Vikki Jefferies is proposition director at Primis Mortgage Network