First-time buyers ‘face most

FIRST-TIME home buyers face the most challenging conditions in 70 years, according to a new report by the Building Societies Association (BSA).

The report highlighted a reliance on dual high incomes or parental support among first-time buyers, while others find themselves trapped in the rental market due to soaring property prices.

The biggest challenge facing firsttime buyers is affordability – both affording the cost of buying a home and the cost of owning a home.

The sizeable deposit generally required to get on the property ladder has been a barrier to home ownership for some time, and the BSA Property Tracker Report shows that the interest rate rises over the past 18 months have led to affordability of mortgage repayments being cited as the biggest challenge for would-be first-time buyers.

Many successful first-time buyers rely on the Bank of Mum and Dad and have two incomes higher than average, leaving those without help, or single, stuck in the rented sector which in itself is a trap, as soaring rents leave little chance of saving for a deposit.

Paul Broadhead, head of mortgage and housing policy at the BSA, said: “Becoming a first-time buyer is possibly the most expensive it has been over at least the past 70 years, but a properly functioning housing market is dependent on first-time buyers being able to afford their first home.

“While building societies are creating bespoke, targeted innovations within the current regulatory framework, new thinking and radical changes are needed.

“There is no silver bullet to increasing first-time homebuyers and it won’t be possible to help everyone who wants to become a homeowner in the current high price-to-income housing market.

“But there are many things that can help to fix the broken housing market.

“That starts with changes to regulations and support schemes that not only help today’s first-time buyers but don’t fail future generations.”

Ben Thompson, the deputy CEO of Mortgage Advice Bureau, a mortgage intermediary with branches in Leicester, Derby and Nottingham, has advised prospective buyers “not to panic”, stressing the need to use expert advice to navigate the difficulties.

Key findings in the report highlighted a confluence of factors contributing to the affordability crisis.

These include mortgage rates being significantly higher than in the past decade, coupled with a 9.2 per cent rise in rental costs over the past year.

Moreover, stagnant earnings growth juxtaposed against soaring house prices presents a formidable barrier to entry for aspiring homeowners.

Mr Thompson said while mortgage rates have come down from the highs seen in autumn of 2022 and early 2023, they are still higher than recent history and far outstrip those ultra-low rates on offer pre-2020.

“This month has seen swap rates which mortgage rates are based on rising a little, and in response to that, some lenders have increased the interest on their products,” said Mr Thompson.

“Prospective buyers shouldn’t panic, though, there are still deals to be had.

“If you’re buying for the first time, your best bet is to speak to a broker, who can access the most suitable deals for your financial circumstances and get you mortgage ready.”

As for prospective first-time buyers, Mr Thompson said one of the most important factors is getting ahead of the game by securing a mortgage in principle to determine your borrowing limit without a full credit check, providing assurance and clarity on what you can afford, thus lowering the likelihood of your mortgage application being declined.

He added that speaking with a mortgage adviser can help evaluate your choices and investigate potential government or lender assistance programmes that may be available to you.

He said: “It’s been a particularly challenging time for homebuyers, especially those making their first move on the ladder.

“Higher levels of inflation mean that we’ve all been spending more to live day-to-day, which makes it that much harder to save for a deposit and get mortgage ready.

“This has come hand in hand with higher interest rates – a double whammy for prospective homeowners.

“Higher interest rates means higher mortgage rates and, while these are now falling, they will land at a new normal.”

Mr Thompson gave three pieces of advice for those looking to purchase their first home and get on the first rung of the property ladder:

HIGH COST OF HOMES PRICING YOUNGER PEOPLE OUT OF MARKET

1: BECOME A JOINT BORROWER, SOLE PROPRIETOR

Parents who might not be in a position to gift the full deposit, or even part of one, could consider becoming a joint borrower, sole proprietor.

This is a mortgage where several people can be listed on the mortgage application.

These people are known as “joint borrowers”.

Of these, only one or two will live in and legally own the property and are known as the “sole proprietor”.

Having more applicants on the mortgage means more incomes are taken into consideration.

This can help improve affordability and the chances of potentially buying a better property.

This type of mortgage could be a benefit for first-time buyers who are in need of a short-term solution to help them get on the property ladder.

For example, if a young person at the start of their career wanted to get on the property ladder but had a lower income, their parents could be added on to the mortgage as joint borrowers to increase affordability for the mortgage.

In a few years’ time, if the child’s circumstances have changed (e.g. they have progressed in their career and have a better salary), they could then apply to remove the joint borrowers from the mortgage.

2: BE A GUARANTOR

For many first-time buyers, the biggest hurdle they face is finding the money to put down as a deposit.

Not having a deposit can put many lenders off, meaning a would-be buyer could struggle to get a mortgage offer accepted.

However, by being someone’s mortgage guarantor, you could still help them get the keys to a home.

There are two ways to be a mortgage guarantor.

People can use their savings to offset against the mortgage, or they can use their own property to offset against the mortgage.

This can be a great way to help

young people get on the property ladder, but make sure you are clued up on exactly what it involves, as there are some risks that you need to be aware of.

3. CONSIDER ALTERNATIVE MORTGAGE OPTIONS

There are a number of alternative options that help family members help their children get on the property ladder – particularly

those who are struggling to save for a deposit.

These include being able to put the money into a specific savings account, which will act as security for the mortgage.

Speak to a broker about the mortgage options available with family support.

They will be able to tailor advice to your individual circumstances.