The somewhat unexpected early election call will inevitably impact the UK housing market to some extent but to what extent remains to be seen. The thing to note here though is that while the date may have come as a little bit of a surprise, the event itself was certainly not unexpected and the market, including the lending community, is certainly well prepared for it.
Essentially, this means that it’s business as usual and for us, as a lender, business as usual means exploring how and where we can provide greater product choice and flexible options to help our intermediary partners meet ever-changing client demands, whichever party happens to be running the country.
This is especially the case for a first-time buyer market which is likely to continue facing its fair share of obstacles from an affordability perspective and when it comes to saving a substantial deposit. Especially when compared to previous generations.
To put this into some context, research from My Home Move Conveyancing shows that, even after adjusting for inflation, the cost of getting on the current property ladder is 191% higher for the average first-time buyer when compared what their parents would have paid in the 1990s.
In the 1990s, the estimated average UK house price was £60,551. Allowing for inflation, this is equivalent to £119,189 today. Meanwhile, the average annual salary in the 90s was £15,034, or £29,593 once adjusted for inflation. This means that the price of a home in the 90s was four-times the average salary – giving an affordability ratio of 4.0.
Over the decades, changes in house prices and salaries mean that properties have become less affordable. In the 2000s, the affordability ratio stood at 6.4, and in the 2010s it rose to 7.1. Now, in the 2020s, an average house price of £280,660 and an average annual salary of £34,637 means that the price of a home is 8.1 times the average earnings – more than twice as much as in the 1990s.
Data like this helps highlight just how much support FTBs are requiring from family members to bridge this gap. Education also remains a key component within this complex equation. According to additional research commissioned by Barratt Developments PLC, one in five (20%) first-time buyers aren’t aware of affordable homeownership schemes but, since the general election announcement, Google searches for ‘first-time buyer schemes’ and ‘first-time buyer ISA’ are reported to have increased by 5,000% and 70% respectively.
It’s not just government initiatives and specialist housing schemes which require that bit of additional schooling. The UK mortgage market is home to a huge array of product types. Of course, choice and options are a real positive in helping to successfully navigate ever-shifting market dynamics and borrowing requirements. But the result is a hugely complex marketplace from a consumer standpoint.
For example, we have recently released a Joint Borrower Sole Proprietor (JBSP) product which allows a wide range of family members to use their incomes to bolster the borrowing potential of the main applicants without needing to be named on the property deeds.
Of course, brokers know that such a product exists, how it works, the merits and pitfalls but how many potential FTBs are aware of it? Or how many existing clients who are at the latter-end of their borrowing cycle and looking to help family members onto the ladder realise that this may be an option?
Knowledge really is power in such uncertain times, and we have now entered a period where there is an even more pronounced emphasis on the advice process and an opportunity for the intermediary market to provide greater clarity, accessibility and expertise to those FTBs who remain clouded in ambiguity. And that is saying something given what an integral role the intermediary community has already played for a rising proportion of borrowers, especially over the past 18 months.
Grant Hendry is director of Sales at Foundation Home Loans