The recent growth in the number of lenders offering high LTV mortgage products to first-time buyers is one that I’m sure will be warmly welcomed by advisers and their first-timer clients, who prior to Spring this year were looking at a very bare market to access.
However, if getting onto the property ladder for the first time was simply all about securing a 5% deposit then I suspect we’d see a much larger cohort of new borrowers moving into their new homes each and every month.
And, as mentioned, this is not as simple as providing low deposit options to potential borrowers because securing a mortgage for today’s first-time buyer is often now about finding a lender who can consider a complex combination of variables across the borrower’s credit history, property type, incomes and deposit, all at the same time.
We’ll all be acutely aware that today’s prospective borrowers have income and affordability criteria to meet which is arguably tighter than it was for previous generations – amongst other drivers, lenders have to put aside more capital in order to offer higher LTV loans so build criteria to responsibly lend their limited tranche of funding available.
Self-employed first-time buyers or those with mixed PAYE and self-employed income often require a specialist eye to understand all of their income routes.
A working and economic environment which has been forged by Covid, the pandemic and various lockdowns over the course of the last 18 months has created potential issues and obstacles to overcome.
Saving up for the deposit generally remains the biggest hurdle for first-timers to get over, but they also have to consider how their credit score and credit report reads. Do they have historical, or even more, recent credit blips? Have they gone through credit problems as a result of pandemic-induced issues? For a great many first-time buyers, the issue is simply a very low credit score due to lack of credit history in areas such as not paying phone bills or not having standing orders setup.
The source of the deposit can also be a hurdle for first time buyers, not all lenders accept gifted deposits, and very few accept them from wider family as we do.
This is therefore not a simple case of more higher LTV products providing the catalyst to get your client into their first home, and clearly it will be the adviser’s job to work through their requirements, to get to the bottom of the client’s income and credit performance, and to weigh up what the availability is like for borrowers who have these requirements.
The likelihood is that deposit requirements are going to be higher in order to access mortgages for first-timer buyers with these circumstances – but there is also movement here. Foundation recently provided access to 90% LTV mortgages within our F1 specialist residential range to those first-timers who might miss out on the mainstream due to a low credit score or a historical credit blip. And we have first-time buyer loans within our F2 range up to 85% for those with recent credit blips within the last 24 months and up to 80% for those who have more recent credit problems.
Of course, 10%/15%/20% is a bigger deposit to secure, but at present these are the maximum LTVs available for first-timer buyers who might come with an impaired credit record who still want to get on the ladder and have the means to do so.
The good news here is that with every week, lenders like Foundation are offering these borrowers a greater array of products to choose from. Options have grown significantly and a competitive lending market, with lenders looking at clients far more individually within a specialist lending criteria set, can only benefit and help many more ‘newbies’ to make their property dreams a reality.
George Gee is commercial director at Foundation Home Loans