"It is also only right that mortgage products also evolve to reflect the different ways in which many people now work, including first-time buyers."
Buying a home has become an increasingly difficult milestone for many first-time buyers in recent years, with rising house prices and stagnant wages making saving for a deposit a significant challenge.
Additional economic pressures such as soaring inflation, higher interest rates and a change in government at home and overseas, has only served to exacerbate things further, adding to the abundance of affordability challenges that have made stepping onto the property ladder an exceedingly daunting task.
According to the Building Societies Association’s First-Time Buyer Report published late last year, becoming a first-time buyer is at the most expensive level it has ever been in 70 years. This has become even more apparent in the last 30 years, as the house price to income ratio has continued to widen.
The report shows that since 1982, house prices have become 16 times more expensive, while income levels are only seven times higher. The cost of renting has also increased during this time, rising 9% in the 12 months to December 2024 alone, according to government figures.
All these factors combined have created significant affordability challenges across the board for first-time buyers, all of which have been compounded by interest and mortgage rate rises over the last couple of years.
Helping first-time buyers overcome these affordability challenges has become a key priority for mortgage lenders, with many looking at ways to enhance their lending criteria and address the factors that have been putting these borrowers at risk of exclusion.
This includes designing products that better serve the needs of the modern-day borrower and taking into account the barriers to entry that may be prohibiting first-time buyers from getting on the property ladder.
For example, higher LTV products of up to 95% have become more commonplace in the market and have been designed to help first-time buyers and other borrowers secure a mortgage with a smaller deposit. Greater flexibility around loan-to-income (LTI) ratios has also been introduced, with some lenders offering up to six times LTI and up to five times LTI at 95% LTV.
Changes in the employment market also means some people now have different and multiple income sources, therefore it is also only right that mortgage products also evolve to reflect the different ways in which many people now work, including first-time buyers.
Varied income sources such as overtime, bonuses, commissions and bank work can now also be accommodated by certain lenders, with those on zero contract hours and the self-employed also more readily catered for with flexible underwriting.
Over the years, the Bank of Mum and Dad has also played a major role in helping many first-time buyers get a foot on the property ladder. More recently however, rising living costs have placed a squeeze on the disposable income of some of these older borrowers, making gifted deposits no longer an option for some.
To tackle this, products such as joint borrower sole proprietor (JBSP) mortgages have risen in popularity, allowing four applicants to join forces to increase borrowing power by using four incomes to purchase a property. This can be extremely helpful for parents looking to support their children’s house buying aspirations, but who may not want to gift a lump sum for the deposit.
Other government-backed initiatives that seek to help first-time buyers include the shared ownership, discount market sale and First Homes schemes, all of which offer first-time buyers the chance to purchase certain properties at a reduced rate, up to 95% LTV.
Similarly, the Own New Rate Reducer Scheme at 95% offers FTBs the chance to access a significantly reduced rate on a new build property with only a 5% deposit, as the property developer contributes to a portion of the monthly interest. This helps to lower the initial interest rate and therefore, the monthly repayments, making the mortgage more affordable.
As a lender committed to addressing the affordability challenges facing first-time buyers, working with brokers and listening to feedback is crucial when it comes to developing products that meet the needs of this type of borrower.
This area of the mortgage market is constantly evolving and there have already been a number of product enhancements that demonstrate the commitment among lenders and government to help ease the affordability burden faced by first-time buyers and help them take that all important step onto the property ladder.
