In Focus: Home ownership  

First-time buyers’ borrowing power hit by affordability stress

First-time buyers’ borrowing power hit by affordability stress

First-time buyers have seen the amount they can borrow dip by as much as 30 per cent in the year-to-date as banks tighten their mortgage affordability calculators in the face of rapidly rising rates.

With interest rate repayments increasingly eating into borrowers’ monthly incomes, lenders are becoming more cautious as to the maximum amounts of what they will or will not lend.

Managing director of Visionary Finance, Hiten Ganatra, conducted some internal analysis of buyers who his firm facilitated mortgages for in January, and then re-ran their affordability calculations in September. 

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The results showed a drop in max lending of between 24 and 30 per cent.

This means a £100,000 loan secured with the same level of income in January shrank to between £70,000 and £76,000 in September.

As a result, buyers need to boost their deposits to cover the gap created by the reduction in the loan size they can secure.

“Most buyers are now simply putting off buying due to two primary reasons – monthly mortgage costs and max lending available which is requiring much larger deposits,” he explained.

“As well as impacting someone's monthly budget, tougher affordability calculators configured by lenders are also taking a toll on the max amount they can borrow.”

Many of Ganatra’s clients who previously were able to staircase up to 100 per cent as recently as August are now having to lower their expectations too.

Staircasing gives a shareholder four opportunities to purchase additional shares in their property so that they can eventually own 100 per cent outright. Borrowers can normally buy up to 85 per cent after which the final staircase must be to 100 per cent.

Lower staircasing options, Ganatra said, are down to the stress testing lenders are doing on their affordability calculations. 

“Monthly mortgage payments have jumped significantly resulting in clients questioning their motivation to staircase,” said Ganatra.

‘30% dip’ in new home enquiries

Busying themselves with remortgages, some brokers are beginning to note a dip in new purchase enquiries.

Founder of The Mortgage Hut, Chris Schutrups said he has seen a reduction of “around 30 per cent” in new enquiries for customers looking to purchase a home.

Adviser at Harmony Financial Services, Imran Hussain, said he is finding single first-time buyers are becoming slightly less confident in the market, whereas couples are happy as ever to continue with new purchases.

“Those finding it most challenging are those on lower incomes,” he explained. “But I did just help a single first-time buyer who is a nurse, so it's not all doom and gloom.”

New purchases are still happening, even if they are dwindling.

Director of Mortgage Confidence, Jo Jingree, said she is still busy with purchases in South London.

“I have clients who have been looking for a while for the right property for them, potentially due to a lack of availability or supply,” she explained.