First-time buyers are facing a tough time at the moment as higher interest rates and rising living costs continue to place increased pressure on monthly budgets, further squeezing affordability levels and reducing first-time buyer purchasing power in a somewhat underperforming housing market.
Limited housing stock and continued uncertainty around the wider economy are also adding fuel to the fire, with houses prices remaining relatively high as demand continues to outstrip supply, all of which only serve to place the dream of homeownership further out of reach for many first-time buyers.
According to recent figures from UK Finance, there were just over 370,000 first-time buyers in the UK in 2022, 9% less than in 2021 when they hit their greatest number since 2006. Lending to first-time buyers in Q1 2023 also hit its lowest level since 2015, excluding Spring 2020 when the market was effectively closed during the first national Covid lockdown.
Tackling the challenges faced by first-time buyers is essential given the importance of this demographic to the health of the housing market; without first-time buyers, second- and third-time buyers can’t move up the property chain and the entire home buying process comes to a halt.
With market conditions likely to remain difficult, and interest rates forecast to stay at a higher level, brokers are going to have to remain on top of their game when helping first-time buyers get a foot on the property ladder, and it is here that the shared ownership scheme can really come into its own.
Over the last few months, the Loughborough has seen a significant uptick in shared ownership enquiries as affordability constraints continue to squeeze first-time buyer budgets. This is no surprise given one of the main attractions of the shared ownership scheme is the fact that deposits are typically between 5% and 10% of the share purchased, which makes saving for a deposit far more achievable.
Loughborough Building Society, for example, offers LTVs of 95% on new builds and 80% on new build flats across our shared ownership range. This means the amount needed for a deposit is significantly less than what would be expected on the open market. Many new build developers also offer discounts such as stamp duty savings or a percentage off the asking price, which means that in some cases, further savings may be had.
Given the financial challenges many consumers have faced in recent years, it is also worth noting that shared ownership mortgages can also be an option for those purchasers with irregular income streams or previous credit issues, including first-time buyers.
For example, we’ll consider the most recent year’s financial figures, rather than the last two, for self-employed applicants while those working zero-contract hours only need a minimum of six months’ proof of income with no more than a two-week gap in earnings to apply.
Applicants with previous credit issues such as a mail order, utility or telecom default that was satisfied three months prior to the application, would also be considered for a shared ownership mortgage, while those that remain unsatisfied would be considered by referral.
Options are also available through the Loughborough’s Shared Ownership Prime Plus product, for those clients with more significant unsatisfied defaults such as a CCJ, IVA or a DMP, which enables borrowers to purchase a property through the shared ownership scheme provided they have a 30% deposit of the share they are buying. This can prove to be a useful way for applicants to get on the property ladder while also repairing their credit record.
For those first-time buyer clients keen to purchase a property in the current economic climate but unable to save a large deposit or restricted by affordability constraints, or even those first-time buyer clients with previous credit issues, shared ownership may offer the lifeline they need by providing them with a more affordable path to buying their first property and setting them on the road to homeownership.
Ashley Pearson is national BDM at the Loughborough for Intermediaries