When I hear people of a different generation compare their home-owning journey to that of individuals trying to buy a first home today, they often suggest it was just as difficult back then as it is today.
Quite frankly, they are wrong. The statistics do not lie in this regard, and it should be clear to all that buying a first home, especially if you have no family support, is not impossible but it’s certainly more difficult now than it has ever been over the past 40 or so years.
So, I fully understand why those looking to buy are incredibly frustrated by the situation itself, but also the ‘suggestions’ they often get from those already on the ladder. ‘Cut out the chai lattes’, ‘stop eating out so much’, ‘don’t watch Netflix or Apple TV’ are suggested as a means of being able to save enough money to be able to buy a home.
This is nonsensical. The simple fact of the matter is that, for the vast majority of would-be first-timers today, cutting out a coffee or a sandwich is not going to get them into a home, because the deposit levels are so high, and with house prices/interest rates as they are, trying to secure a mortgage is more difficult than ever.
A report by Leeds Building Society called, ‘A Place to Call Home’ looks at some of those barriers that have historically impacted first-time buyers over the last forty or so years, but also looks to the future about the market first-timers are likely to be encountering in the next four years.
Perhaps unsurprisingly, one of the key barriers has been house price rises which have not been matched by wage/income inflation, and thus not only do we have a situation where saving for the necessary deposit has become much harder, but in an environment where interest rates look very different to what they did during the 2010s and early 2020s, affordability has now been stretched significantly.
As the report rightly points out, the ability for many people to get into a first home is predicated on the amount of financial support they can receive from parents and grandparents.
Given those higher house price rises – even with the slight falls we’ve seen over the past year or so – coupled with those much higher rates, then the situation is just as difficult for the vast majority of would-be homeowners, but particularly so for those who don’t have a Bank of Mum & Dad, or the grandparent equivalent, to be able to go cap in hand to.
Looking ahead, the report does not provide much in the way in terms of optimism for those who would like to buy their first home at some point in the next few years. Again, the situation is even worse for those who can’t secure a deposit, or help with saving, or a guarantor willing to guarantee the mortgage payments.
The figures are somewhat stark – the Leeds’ report suggests 400,000 first-time buyers will be ‘lost’ to the housing market over that four-year time period, ‘compared with what…would have [been] expected on the basis of the average number of FTB transactions’.
As stated, this is down to not being able to save enough deposit, trouble meeting the mortgage affordability barrier, and no doubt, finding the supply of properties to be able to even begin the search in the first place.
The Leeds’ report suggests this next generation ‘are naturally pessimistic, reliant on previous generations and facing hurdles never seen before’. I wouldn’t disagree with any of that, which makes the outlook somewhat bleak for many who are probably wondering if they’ll ever get on the housing ladder.
However, we have to be positive, and as a mortgage market/industry it is incumbent on us to provide opportunities for those with smaller deposits to get on the ladder, particularly those who don’t have a parent/grandparent with cash to help them.
In that regard it has been pleasing to see a recent increase in 95% LTV mortgages, but why should we stop at 95%? I’m not suggesting 100% LTV – although clearly some lenders are willing to go there – but by utilising mortgage insurance, for example, and mitigating against the higher risk, lenders should be able to go up in smaller 1% increases.
Why is a 95% LTV mortgage the ‘standard’ maximum in most cases? Is a 3% or 4% deposit that much different in terms of risk to the lender, compared to 5%? All can be covered by insurance depending on what level of risk the lender is willing to take, and when we are talking about many thousands of pounds worth of savings from the first-time buyer, being able to purchase property without necessarily always needing 5% is bound to be helpful.
There are a number of recommendations within the report, all worth pursuing when it comes to building more homes, increasing affordable routes to ownership and supporting people to save for a deposit, however lenders also need to move their thinking in this area.
The deposit remains the biggest barrier still, and an increase in the product choice for higher LTV mortgages, would help a significant number who otherwise are looking decades ahead to buy their first home, not years.
Patrick Bamford is head of international business development at Qualis Credit Risk, part of AmTrust International