When it comes to helping first-time buyers access the housing ladder, there’s no questioning that the Help to Buy scheme has been effective.
The latest data from the Department for Levelling Up, Housing and Communities shows that to date more than 360,000 properties have been purchased with the help of an equity loan through the scheme, property worth a total of more than £100bn.
However, now that Help to Buy programme has closed it doesn’t mean that the challenges faced by first-time buyers have simply disappeared.
If anything, the exact hurdles that hold back wider home ownership are even more pronounced than when Help to Buy was first launched, meaning that it’s left to the market at large to innovate and provide them with the helping hand needed.
Tackling the deposit difficulties
That’s something that we want to address at OnLadder.
We are partnering with prospective homebuyers, and helping them to provide the deposit required through the provision of an equity loan. During the term of the loan the buyer can then make low monthly principal repayments towards the loan each month, and then pay off the bulk of the loan when they remortgage or sell up.
It’s a proposition that obviously holds particular resonance at the moment, with the economic difficulties making it tricky for potential buyers to set aside enough cash each month to build up a sizeable deposit.
Saving a deposit is difficult enough when times are good, but given the rising cost of living there are plenty of excellent prospective borrowers who are locked out simply because they do not have the additional financial wriggle loom to supplement their existing savings.
They would make perfect mortgage borrowers, more than capable of affording their repayments – which after all is ultimately the biggest consideration – but they are locked out from applying for mortgage finance because of the size of their deposit.
It’s also important to recognise that this form of deposit loan solution will play a useful role even when things improve, since economic growth tends to turbocharge the rate at which house prices grow.
Given the persistent shortfall we already have in terms of supply, the rate of house price increases may result in real difficulties in accessing mortgage loans large enough to complete a purchase.
Working together
It would be easy to assume that those looking to introduce some innovation into the mortgage experience of first-time buyers are looking to entirely disrupt the sector, to tear up the way things currently work and build something new.
And while it’s certainly true that the process for would-be homeowners could be improved, I prefer to think of it as enabling rather than disrupting. The way that the OnLadder model works simply makes it easier for lenders and brokers alike to operate, rather than taking anything away.
Lenders are understandably more risk averse in the current market, and are also subject to significant regulation which can tie their hands. Yet OnLadder’s proposition – which has garnered a strong response from many lenders ahead of our full launch – can help lenders continue to operate responsibly, while still helping buyers onto the housing ladder.
Similarly, by giving would-be first-time buyers a helping hand, mortgage brokers will be able to assist more clients in purchasing the home of their dreams.
Every first-time buyer’s financial situation is different and a wider range of financing options simply makes the essential mortgage advice brokers provide even more invaluable.
Innovation can help us all to work together and more efficiently, enabling rather than disrupting, to help first-time homebuyers and create a healthier housing market.
Cameron Orcutt is CEO and co-founder of OnLadder
