"Advisers will be aware of potential first-time buyers who currently pay more each month in rent than they would do with the mortgage they require, and yet that mortgage is still deemed unaffordable"
Take the first-time buyer market for instance and the overwhelming concern around boosting the numbers able to get into their own property back to more historically ‘normal levels’. Despite, what seems like, plenty of schemes and measures announced in this area – and I will say that the number of first-time buyers in the UK has undoubtedly improved over the last four to five years – we are still left with a position where those numbers are not what we would wish.
Indeed, some recent research from Voucher Codes Pro suggests that a significant 78% of all British people aged between 18-30 years old don’t think they’ll ever be able to own their own home. That’s a sad indictment of the state of the housing and mortgage market for young people and unsurprisingly the main reason given for this is their ability, or rather inability, to save the necessary deposit.
We can of course talk about the rise in the Bank of Mum and Dad, and for certain lucky individuals their family are able to help them cross this deposit divide. But, even with money in the bank, there are no guarantees when it comes to securing the mortgage necessary to buy a place. For a start, how far would a 5% deposit get you? Not particularly far is the answer. Our most recent quarterly LTV Tracker research continues to show there can be just a handful of products available to those with a 5% deposit looking to buy averagely-priced property in the UK.
And then of course there is the affordability conundrum, which can be incredibly difficult to solve for potential first-timers looking to secure much-needed finance. How do you prove you can afford the mortgage? How do you get over the much higher affordability hurdles that have been placed in your way? It’s not simply a case of, for example, proving that you have consistently paid rent for X number of years because lenders have very different ways of defining affordability and many will not even take the rental payments into account.
The perceived risk factor for lenders in this part of the mortgage market is clearly a big problem. Advisers will be aware of potential first-time buyers who currently pay more each month in rent than they would do with the mortgage they require, and yet that mortgage is still deemed unaffordable to them. The requirements might be 4.5/5 times income and this is too much to bear, or they are falling short when it comes to the stress test levels that lenders must use in order to satisfy the regulator. When your stress test is at levels of SVR-plus X% then it’s clearly going to be much more difficult to meet them, especially if you’re in that 18-30 bracket and you’re nowhere near to maximising your income potential.
This is a key point that lenders, where possible, should try to keep in perspective; indeed the onset of Open Banking and the ability to forensically look at an individual’s entire financial operation might help in this regard, and might deliver a greater level of understanding about the ability of a customer to afford a mortgage. We all know why some lenders employ computer-based underwriting, but you get the sense that large numbers of credit-worthy individuals are missing out on loans because their specific, individual needs and circumstances are not being reviewed but instead the ‘computer is saying no’.
That said, the good news is that a number of ‘specialist lenders’ are, at the very least, looking at the first-time buyer marketplace with the intention of joining, for example, the large number of building societies who are prepared to look at the individual. You might say that the regulatory affordability requirements are out of lenders’ hands, but there remains an opportunity to employ a level of bespoke underwriting and flexibility, whilst pricing for risk, and employing a credit risk mitigant such as private mortgage insurance to cover this off. Our belief is that by looking for such solutions we can open up the market and give those individuals who are worthy credit risks the chance to get onto the ladder.
In that sense, there’ll be no magic wand to use in 2018 but a tangible and logical approach could bring benefits for all stakeholders, particularly those who do have the ways and means to secure a deposit.
