Those looking to take their first steps onto the property ladder live in interesting times.
House price growth has remained subdued for many months now and political uncertainty looks set to stay for the foreseeable future.
For first-time buyers, this is not necessarily a bad thing.
Slower house price growth has enabled many to step onto the property ladder and record low interest rates provide great value on mortgage products, offering reduced monthly repayment costs.
Historical house price growth had made prices too high for many first-time buyers.
In recent times though, we have seen first-time buyer numbers significantly increase and this is in large part due to the Help to Buy scheme.
Since its launch in 2013, the government’s equity loan scheme has supported over 210,000 property purchases, the equivalent of £11.71bn and 81 per cent of first-time buyers.
However, Help to Buy was only brought in as a short-term solution.
In 2021 the first restrictions come into play and in 2023, the scheme will end.
The government has given no indication that an extension or alternative is planned, raising questions around how the market, particularly developers, will cope in its absence.
The end of Help to Buy poses a new challenge for the industry.
But with change comes opportunity, and for those ready to innovate, a real opportunity may arise – not least for mortgage lenders.
With the government’s support due to be withdrawn, the private sector must step up and fill in to capture the appetite of those who will still be looking to get onto the ladder.
For lenders, life without Help to Buy could mean a greater focus on higher loan-to-value products.
Currently, there are only 14 lenders offering 95 per cent LTV on either new build houses or flats, in comparison to 47 lenders at 90 per cent LTV.
95 per cent LTV will be a valuable alternative for first-time buyers when the scheme ends, and we need to see more lenders enter this space soon.
However, lenders are still obliged to meet the 4.5x gross income lending cap, which is an important consideration if we are to see the same volumes of first-time buyers on the ladder as there were while Help to Buy has been in place.
In effect, lenders could consider a ‘private’ Help to Buy range. Other alternatives could include schemes around the transition from renting to owning and staircasing.
Also, the part that shared ownership must play cannot be forgotten. Recent predictions by Savills have shown that shared ownership could be set to rise by more than 15,000 homes per year, more than twice the number currently being built.
Importantly, for many the scheme has proven to make homeownership more accessible than other options – with smaller deposit requirements and lower monthly mortgage repayments, as well as availability on new and second-hand property.