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.
The value of advice will be crucial post-Help to Buy, as many borrowers will need to be re-educated on the options available.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With the government’s support due to be withdrawn, the private sector must step up and fill in to capture the appetite of those who will still be looking to get onto the ladder.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.
Proposition innovation from lenders will also play a key role in the transition from Help to Buy. Family mortgages are a sensible pathway for lenders – as it is safe to assume that financial support from families will continue to be a major factor in the next generation.
Our research has shown that in 2019 alone, the 'bank of mum and dad' is expected to support more property transactions than Help to Buy has since its introduction in 2013.
This is likely to continue, with donations from family and friends increasing and the trend of gifting inheritance early, by raising funds via equity release.
In this sense, the role of family members will support not only deposit requirements, but in some cases guarantee mortgage affordability requirements.
Lastly, it will become increasingly important for first-time buyers to get the right advice for alterative options. For example, we know from our research that nearly a third (31 per cent) of borrowers going direct to a lender did not know how a mortgage adviser could help their mortgage search.
As an industry, we need to be working hard to educate consumers about the wide range of options available to them and how they can benefit by speaking to a broker about the different options available.
Here is a window of opportunity for brokers.
The value of advice will be crucial post-Help to Buy, as many borrowers will need to be re-educated on the options available.
Yet this is also a time for the industry to work together on building new products and propositions to fill the gap.
Help to Buy was never meant to be a permanent fix, it was about stimulating the market.
Ultimately, it is now up to us to explore the different avenues available ahead of time.
Craig Hall is head of broker relationships and propositions at Legal & General Mortgage Club
