The mortgage market is losing tomorrow’s borrowers today
Chris Lee, founder and CEO of Own Homes, discusses how the mortgage market risks losing future borrowers by focusing only on those ready to buy now.
Leeds Building Society and Metro Bank have both launched new low or no-deposit mortgages in recent weeks, joining Lloyds and others already in the market. Reducing the deposit requirement is a welcome step. The mortgage market is still built around people who are ready to buy now, and that represents only one part of the potential first-time buyer (FTB) market.
Having directed the Government’s Help to Buy: Equity Loan scheme, I have seen what well-designed support can achieve. I have also seen how many financially capable homebuyers simply cannot save a deposit while paying high rent. Millions of renters fall into that group. Some may be able to afford mortgage-level monthly payments, yet lower-deposit products alone will not get all of them to the point where they can be approved for one. The industry has no consistent way to support the rest to reach a position where they’re able to buy, tomorrow.
Supply is one reason why. Britain does not have enough affordable homes for the homebuyers who could now qualify for these products, and new-build developments coming to market have fallen to their lowest level since January 2017. Some of the mortgage products designed to widen access, including those from Leeds Building Society and Lloyds, exclude new-build homes altogether. The properties most likely to sit within a first-time buyer’s price range are often the ones these mortgages cannot be used on.
Eligibility criteria narrow the pool further. Metro Bank’s mortgage requires an immediate family member to share responsibility for the loan, which helps homebuyers with relatives able to offer that support. But it does little for those without them. Lloyds’ product is capped at properties worth up to £300,000, excluding homebuyers in large parts of the country before affordability is even assessed. The eligibility criteria themselves are reasonable risk management.
A meaningful share of renters who could benefit from a lower deposit will still not meet the requirements to access one. When an aspiring homebuyer falls outside those criteria, the usual advice is to save for longer and try again later. For someone already paying high rent and meeting household bills, that is not much of a plan. It also risks advisers and lenders losing contact with a significant group of potential future customers.
Mortgage readiness should be treated as a journey rather than a single point of application. For advisers, the opportunity lies in having a credible route for customers who may be able to sustain the cost of homeownership but are not yet able to meet the deposit requirements of the mainstream mortgage market.
Alternative pathways can give advisers more scope to work with those aspiring homebuyers before a conventional mortgage becomes available, helping them understand the size of the gap, what needs to change and how they could progress towards ownership over time. Rather than the relationship effectively pausing until a deposit has been accumulated, the adviser can remain involved as the customer moves towards mortgage eligibility, creating a more structured pathway from aspiring homebuyer to future borrower.
Saving alone will not close this gap. Suitable, stable housing is the other half of the problem, and alternative pathways can work alongside mortgage advice here rather than replace it. At Own Homes, we created a homeownership pathway to support aspiring homeowners who can afford monthly mortgage costs but cannot save a deposit to rent, save or own. Eligible homebuyers choose and live in the new-build home they intend to purchase and build their deposit through structured monthly savings within five years, with savings, affordability and progress tracked throughout. No family backing or price cap required.
The industry has invested heavily in products for customers who can buy now. That innovation addresses only the final stage of the journey, and only for those who fit its criteria. The next opportunity is to support the people who could become credible borrowers in a few years from now, not just months.
Tomorrow’s FTBs already exist. The question is whether the mortgage market starts building relationships with them now or waits until somebody else does. Those relationships will shape the next generation of FTBs just as much as the products themselves.
Chris Lee is founder and CEO of Own Homes
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