Brokers can change lives for first-time buyers

Last month’s cut in the Bank of England Base Rate and improving expectations for jobs and growth should bode well for first-time buyers. However, the systemic problems that affect the UK housing market remain steadfastly in place. The UK has lived under the shadow of a perma-crisis in residential housing for decades now – a housing crisis which as the 2021 Census revealed is more acute in some areas than others. Supply remains a key issue which means affordability remains the number one consideration facing new buyers. 

Getting on the ladder 

Earlier this year, a report by the BSA, backed by five of its largest members as well as the Intermediary Mortgage Lenders Association, stated that becoming a first-time buyer is 'possibly the most expensive it has been over at least the past 70 years'.

The findings came after a separate survey by Nationwide revealed that one in five prospective first-time buyers don't think they'll be able to buy until their forties. The average age is currently 33. 

It’s not surprising – there is a lot more competition for smaller dwellings than ever before. The Census of 2021 showed that the rise of single dwelling households in the UK has been prolific – in part a result of an ageing population. According to the data, the proportion of the population aged 65 years and over last March was 18.6%, up from 16.4% in 2011. One-person households (those living alone) are the second most common type of household, accounting for almost 1 in 3 (30%) UK households in 2022, 8.3 million households, the majority (53%) of these households were women living alone. 70% are women over 65. 

This competition for smaller newer properties exacerbates an already acute problem. But it also explains why Labour’s manifesto only fleetingly mentions first-time buyers and focusses on building more property. One paragraph of the pre-election manifesto addressed first-time borrowers by promising the first chance to buy new homes and preventing entire developments being sold off to international investors before houses are even built. It will also introduce a permanent, comprehensive mortgage guarantee scheme, to support first-time buyers. 

Some help is needed. The BSA reported that the number of homeowners with mortgages has fallen by more than two million since peaking in 2002, with affordability challenges meaning that in many cases, people require two above-average incomes and help from family to buy their first home. 

The current stock will not always do

The focus on the structural lack of supply will help but it is not a short-term solution. However, younger buyers like new build properties and with good reason. One report earlier this year revealed new build property enquiries from first-time buyers reach a high of 65% of total enquiries in January - an increase of 16% from last year.

Of course, new builds have no upward chain which significantly reduces the risk of delays and last-minute disruptions. All of this is very welcome when you consider how stressful the process is.
 
With the rise in the cost of energy bills and environmental concerns, first-time buyers do believe it is important to consider how energy-efficient a property is before purchase. New builds are constructed with the latest energy-efficient technologies, materials, and appliances with the promise of lower utility bills and a reduced environmental impact, providing cost savings over the long term. It’s not altruistic – particularly when you consider how much retrofitting older properties to meet environmental performance regulations may cost in the coming years. Research last year by the Home Builders Federation found that energy bills for new homes are on average 55% cheaper, saving households £135 on monthly running costs. Over 80% of new homes have the highest A or B ratings. This is significant too as cheaper loans do exist for more efficient properties. 

AA Home Insurance research revealed the features that homebuyers want in a new property. The top five most in-demand features included gardens and off-street parking – not really the preserve of poor performing Victorian inner city terraces. 

How will the market and government meet this demand?

While the cost of building materials and labour remains an issue and Future Homes Standards are due in 2025, there is a sense that the government will look to address the supply of housing for first-time buyers. Labour has NIMBYism and planning in its sight and the party will restore mandatory housing targets, ensure that planning authorities have up-to-date Local Plans, and promises to build a new generation of new towns that, alongside urban extensions and regeneration projects, will form part of a series of large-scale new communities across England. 

Labour also plans to deliver the biggest increase in social and affordable house building in a generation and will prioritise the building of new social rented homes and better protect existing stock by reviewing the increased right-to-buy discounts introduced in 2012 and increasing protections on newly-built social housing. 

Where there is challenge, there is opportunity 

Brokers typically advise clients at the point of need, or the moment of a transaction, but arguably, when it comes to first-time buyers the advice should be given far earlier. Affordability remains the single biggest issue in the face of such limited supply and a cost-of-living crisis which while improving has not abated. A big enough deposit remains the most significant barrier to new homeownership but early action, if possible, can mitigate the issue.

Much has been written about the Bank of Mum and Dad and while not everyone can gift or loan money to their children, there are some other ways family can help. Some lenders offer joint mortgage sole proprietor schemes or guarantor mortgages. which allow parents to use their savings or property as collateral or provide gifted deposit.

In the absence of Help to Buy, other schemes such as Deposit Unlock or First Homes or shared ownership may be appropriate. Shared ownership is attracting a lot of attention at present and the schemes enable new buyers to buy a stake in a property (typically from 25%) and pay rent on the rest. 

Of course, even the right deposit cannot dent the cost of borrowing but if rates do steady then the appetite among lenders to support these borrowers will increase, particularly if they are buying new energy efficient homes which help lenders meet their scope 3 emissions targets from the regulator. The cost of mortgage finance is crucial but so is the type of property that lenders will want to lend on. We may yet see changes to the LTI limits. New housing developments may offer better prospects for all concerned.

In terms of the funding options, longer mortgage terms may also help. Where 25-year terms were once commonplace, a growing number of first-time buyers are now borrowing for 35 years or more. Some lenders set maximum age limits on their mortgages of 80, making it easier to borrow for longer. Yes, your borrower will pay more over the term, but they will get the property they want, and they can remortgage as they reduce the balance. 

The opportunity is there for brokers to help first-time buyers navigate this market and the mood music is that it will grow over the coming months as affordability issues recede. But advice has a duty to prevent foreseeable harm by accurately assessing that the required loan is right for the borrower. No-one is better placed to do that then the broker.