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The fluctuating challenges facing first-time buyers  

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Affordability remains the biggest single barrier to entry to homeownership for first-time buyers (FTBs), driven by persistent cost of living pressures, reduced disposable income and stricter stress testing, with single applicants particularly affected.  

In fact, constraints on affordability are significantly higher than  pre-2022 levels, when after lockdown things were beginning to look up. 

We are beginning to see the impact of the Renters’ Rights Act and its unintended consequences that have affected many renters, would-be FTBs, particularly in parts of the country where the Act has led to a reduced private rental housing supply. High rents and reduced saving towards a deposit may well mean more potential buyers are stuck in a ‘rent trap’.  

The number of high loan-to-value (LTV) mortgage products that are now available that reduce the need for a sizeable deposit is a welcome development, albeit these deals come with higher pricing, tighter criteria and consequently often limited, but certainly reduced choice. In other words, less affordable. 

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Family financial support 

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Increasing reliance on family support as a structural part of the homebuying journey continues. Family financial support plays a big part in our offering at the Family Building Society.  

We conduct twice yearly mortgage intermediary business outlook surveys. Our most recent survey found that well over half of the brokers (59%) noticed an increase in enquiries where family members want to support the mortgage or help with the moving costs of FTBs. However, 79% said the desire of the younger generation to get on to the housing ladder was as strong as ever. 

Among broker comments compiled by the survey, were: “Owning a home is a popular life goal for many young people. They see influencers with their own home and want the same,” and “Parents are keen to get their children on the property ladder and are helping with deposits.” 

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Looking forward, brokers said low income households (73%), first-time buyers (54%) and the self-employed (46%) were the groups that were at the most risk of affordability pressures, this summer and autumn. 

Income stretch  

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With the continued and rising family financial support to many FTBs, income stretch is overtaking raising a deposit as a key constraint.  

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In fact, we find that many would-be borrowers hit loan-to-income (LTI) ceilings before solving the deposit requirements, particularly the more complex cases, such as the self-employed. We are also witnessing a growing mismatch between improving rates and actual borrowing power.  

However, the recent Financial Conduct Authority (FCA) paper exploring a more flexible approach to assessing borrowers with multiple or irregular income streams, challenging traditional underwriting, is very welcome.  

Product availability  

As I mentioned earlier, the return of higher, even 100% LTV loans, whilst maintaining a strong focus on risk is good news, particularly when coupled with innovation in the market, the acceptability of family-backed security and borrowing  and the increased popularity of hitherto niche offerings such as joint borrower, sole proprietor (JBSP) mortgages.  

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The Skipton’s Track Record mortgage is a good example of innovative and bold thinking. We are seeing flexible products like these that are being developed for non-standard borrowers and marketed not on price alone. There is also compelling evidence on the importance of greater segmentation aimed at supporting FTBs more effectively. 

Fit for purpose 

It is good news that these products on the market are designed to address the real barriers facing FTBs  and their income and deposit constraints, particularly relevant for younger buyers in expensive parts of the country.  

The average age of FTBs, now in their mid-thirties, means that they are effectively being taken into later life lending from the outset, with mortgage terms extending to 40 years and beyond, even to 95 years of age in my Society’s case. 

These family-backed and JBSP mortgages have moved from niche products to mainstream tools, helping brokers find solutions where standard, legacy lending falls short. It is a market that is underserved by major lenders that don’t want to or feel the need to enter. 

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It is my view that the challenges for FTBs are no longer one dimensional and neither are the solutions.  

The affordability of servicing a mortgage has overtaken saving for a deposit as the main barrier to entry, so lenders and brokers that embrace flexibility, family financial support and specialist products will be best placed to guide the next generation onto the housing ladder. 

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