As we enter the last quarter of the year – and it was an interesting first nine months to say the least – it’s possible to see a significant amount of manoeuvring from lenders as they position themselves to secure business not just for 2024, but the initial pipeline required in 2025.
Lest we forget that with an average purchase transaction taking at least 4-5 months to complete from marketing, it’s very likely business ‘agreed’ now won’t actually be hitting the books until the new year anyway.
That clearly has implications not just for lenders but advisers as well, in terms of the income they receive.
Attracting first-time buyers
Within this context, it’s perhaps not surprising to see a number of lenders offering mortgage products for first-time buyers. This group has been the most resilient of purchase borrowers in the last couple of years, plus they come with no onward property to sell.
Therefore – technically at least – they should be able to complete within a quicker time frame.
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Of course, the reality of that situation can be much different depending on the chain they find themselves in, but at least they are the last link in that chain.
Perhaps the most notable recent product to be launched specifically aimed at first-timers is Nationwide’s six times income mortgage, available with only a 5% deposit. Not the only lender to offer this, it is one of the most prominent given its national reach and status as a significant player in the mortgage market.
The fact this is offered for first-timers with only a 5% deposit is certainly of note, and a real positive, especially for the significant cohort of would-be purchasers who are not able to access a Bank of Mum and Dad for a bigger deposit, or are simply trying to marry up higher rental costs with the urge to save, and only likely to get to a 5% deposit level.
The rising rental barrier
This correlation between renting and wanting to buy is a constant, of course, but higher rental costs throughout the last couple of years in particular may well have put a dent in the ability of individuals to save higher deposits. Especially if – as recent research from Aldermore outlines – they are also having to pay rent and a mortgage at the start of their purchase journey.
The research of 2,000 would-be first-timers and 500 of those who have actually bought a first home revealed that 45% of those surveyed said they had to pay both rent and a mortgage in the early months of a purchase. In fact, double rent and mortgage payments lasted about 2.4 months, again something that most new owners may not have considered when weighing up the money required to get on the ladder.
It all adds up, and renting can have a significant impact on the ability to save the money required in the first place, as well as the timescale to get to a point where a deposit is enough to secure the mortgage.
A favourable environment for new homeowners
Certainly, a greater proliferation of higher-loan-to-value (LTV) products from lenders helps in that regard. We are in a downward interest rate environment, and greater levels of competition in this space can also bring rates down, making affordability criteria within reach, and allowing more individuals to get the finance they need to buy a first home.
Again, in that context, it will be interesting to see what the Budget holds for first-time buyers.
We’re aware of a ‘new’ mortgage guarantee scheme, although I’m deeply sceptical of its need and indeed any benefits it delivers, with the previous iteration not exactly setting the world alight in terms of usage and subsequently the number of first-timers that benefitted from it.
Instead, lenders tend to want to choose their own private mortgage insurance and guarantee for flexibility and pricing, while others simply take the risk on their balance sheet. It is perhaps an ‘easy’ political win to continue this, but taxpayers’ money is likely to have been better spent elsewhere, especially considering the black hole we are told exists in the public finances.
Overall, however, we appear to be entering an environment that is more conducive to greater numbers of first-timers – supply-dependent, of course.
House prices have not rocketed in recent years, and are likely to stay steady for some time, and with falling rates, broader affordability options, and more high-LTV products, advisers should be able to help a new generation of homeowners who clearly want to move out of the private rental sector (PRS) and into their first properties.
