Affordability, understanding, and education: Supporting borrowers on their home ownership journeys

The high interest rate and inflationary environment dominated headlines for much of 2023. While the long run of consecutive interest rate rises came to an end in September, the impact of high mortgage rates is still being felt. With the Bank of England recently confirming the base rate will remain at 5.25%, future mortgage borrowers will be monitoring closely for what this means in terms of mortgage deals that will come to market over the course of the year and what it means for affordability levels. In fact, we know from data collected earlier last year that 10% of prospective buyers said that they would stay renting until rates come down for them to buy what they want.

UK Finance recently published its outlook for 2024 and projections for 2025, to which it said this year is one of continuing challenges in the mortgage market. While the main pressures on affordability look to be peaking now, it will take some time for the pressure on household finances to recede. However, there is reason for optimism and brokers and lenders have an important role to play in supporting customers in reaching their homeownership goals, whether they are purchasing their first home or remortgaging.

Affordability is by far one of the biggest concerns among homeowners. A flexible approach from lenders in assessing this can support more people, particularly those with more complex income streams, get on the ladder. This is evidently felt among consumers, with 40% of self-employed individuals wanting lenders to be more understanding when it comes to those with complex incomes.

In addition to this, there is clearly a greater need for education among consumers when it comes to buying a property and being mortgage ready. For example, some first time buyers remain unaware of additional costs associated with purchasing a home and are not factoring this into their overall affordability levels. For self-employed individuals, automatic assumption of mortgage rejection has also stopped many from even applying for a mortgage, potentially highlighting a knowledge gap that getting a mortgage may well be possible for them.

We explore further what people perceive the barriers are to getting a mortgage, and how brokers can help bridge the knowledge gap that evidently exists.

Affordability concerns and compromises being made among potential borrowers

Many have been keeping a watchful eye on property prices and mortgage deals on offer, with renters revealing they’ve put off their buying plans until property becomes more affordable. Almost one in five (19%) said that high mortgage rates meant they can’t afford to buy now and have put plans on hold completely, whilst 12% said that they would stay renting until prices come down.

That said, there are a number of prospective homebuyers who said they are progressing with home buying plans, though they’re having to make compromises in order to do so. A quarter of those planning to buy said they’re buying away from traditional commuter towns, and 32% have moved further from the city centre. Likewise, 16% are buying in an area with cheaper living costs to combat higher payments. Others have reconsidered actual properties themselves, with one in five (21%) saying that they’d buy a cheaper property that needs more renovation work, and 12% are looking to buy smaller properties instead.

The journey to buying a property can be a long one, and it can easily be complicated by the ebbs and flows of the housing market, particularly when considering the current property landscape. Although being adaptable and regularly checking what rates are available on the market may serve renters well in the long term, it’s understandable that so many are feeling frustrated by their options. What it does highlight is how important it is to speak to a broker early about property ambitions as they can help breakdown how much borrowers can afford, as well as any other available options.

More education required

There is clearly a lack of knowledge over additional costs and fees associated with buying a property, leading to some prospective homebuyers being ill prepared to buy. 24% of prospective UK homeowners don’t realise that they may have to pay stamp duty before buying their first home, with a further 21% saying they haven’t considered these costs in their budget. Other payments that homeowners revealed they haven’t factor into their budget when buying their first home include solicitor’s fees, valuation fees, surveyor’s fees, and the cost of a homebuyer survey.

Worryingly, a number of homeowners revealed they weren’t even aware that costs such as electronic transfer fees, indemnity insurance, and mortgage advice fees even existed. Buying a first property is a major life milestone as well as a huge financial commitment. In addition to securing a mortgage and getting a deposit ready, there are an array of other associated costs involved with getting on the property ladder. But all too often these are either forgotten about or not factored into budgets, meaning many are hit with a financial shock when presented with the additional fees and charges they need to pay.

What is clear is that there is evidently a knowledge gap when it comes to what’s involved with buying a house, with many learning the hard way when they’re either on or have already been through the home buying process. More than ever, this highlights the need for professional advice. Brokers are not only expertly equipped to support their clients in getting the best mortgage deal for them but can also ensure that buyers are well prepared in knowing what their affordability is and understanding what other costs may come their way.

Self-employed put off getting a mortgage altogether

Our research found that 34% of self-employed individuals have never applied for a mortgage. Concerningly, many have not even tried for a mortgage because of the assumption they would be rejected as a self-employed individual. 30% said they’ve never applied for one because they didn’t think they would be approved, while 26% said they heard it’s more challenging for self-employed people to get a mortgage.

But while they may receive a less traditional form of income, this does not mean they should feel excluded from the market. Specialist lenders have an important role here in offering greater understanding to this cohort, and ultimately providing them opportunities that highstreet lenders may not offer. They are able to do this by offering more flexible ways to assess incomes, which can be a bridge to self-employed people getting on the property ladder.

Delving into the sentiments of self-employed people and how they feel when it comes to the mortgage process, many want it to be more straightforward. Our research found that 38% of self-employed individuals think that having more specialist lenders in the market that cater to those with more complex incomes would make the mortgage application process easier for them. 32% said working with a broker that has a specialism for assisting self-employed customers would also make the process easier for them to help navigate what is required.

Evidently, brokers continue to play an important role in supporting customers when it comes to getting on the property ladder. With hundreds of deals on the market, it can be difficult to decide where to look. But for those with more complex income structures or who may need more consideration, a broker can support in educating customers and findings alternative solutions for more people to purchase a property.

As we begin 2024, many will likely be considering their goals and aims for the year ahead. For those considering buying or moving property, speaking to a broker early will help to secure the best deal possible and ensure everything is ready to move quickly when a suitable opportunity arises for the customer.