The decisions facing prospective first-time buyers at the moment are interesting on so many levels and, despite the ‘it was exactly the same in my day’ brigade who often feel the need to pipe up when the current struggles of first-time buyers are mentioned, they are (in many cases) unique to this particular time.
Just quickly on that point about those who somehow believe that someone can easily save for a house if they cut out their Netflix subscriptions or chai lattes or avocado on toast. Yes, that might be possible, if it wasn’t for the rather sizeable obstacle of ongoing (and very high) rental costs, of soaring energy bills, of a cost of living crisis and everything else which drains money from a bank account.
Today’s market is not the same as in the 1970s/80s/90s, or indeed any other time period, because house prices were a lot lower back then, income to mortgage debt was a lot more in balance, there was more supply to choose from, and first-timers tended not to have too much difficulty getting a low-deposit mortgage.
Those who somehow feel the need to berate this current generation of wannabe owner-occupiers, who don’t have the same benefits of their parents or grandparents did, should probably think again.
So, in those circumstances, it is not really surprising that first-timers are willing to look at all options when it comes to buying – from shared ownership to accessing various Government schemes, to buying with friends or seeking parents as guarantors.
And, according to recent UK Finance data, they are also increasingly willing to look at longer mortgage terms, no doubt to get over the major affordability hurdles that exist due to a combination of higher house prices, higher interest rates, and incomes/expenditures which are nowhere near keeping pace with inflation and what it costs to live these days.
In March this year, a record 19% of first-timers took out a 35-year mortgage, compared to just 9% in 2022 and only 2% in 2005. That should tell you which way the market has moved over that time period, and indeed over the last 12 months.
In my view, the ability to take a longer term if necessary should be championed, not chastised, in the same way we should all be looking to lenders to offer more higher LTV mortgage products to help those, for example, who can’t call upon the Bank of Mum & Dad.
I’ve seen some comparing 35-year mortgage terms to glorified renting, but I can’t agree, given that a 35-year term doesn’t necessarily mean a 35-year term for first-timers.
Of course, it gets them on the ladder and obviously at the start of this home-owning journey they have 35 years left on a mortgage, but much can change within a few years, let alone over three and a half decades.
Within a few years, they might well have a better paid job, they might have got married, they might be looking to relocate – life happens, and as it does, housing needs can change.
And, historically, at least our house values change too, with capital appreciation making a difference as well as the money that’s actually being paid off. What started off as a 35-year term, can metamorphise into a different home, a different mortgage, a different term, a different amount of borrowing.
In other words, there’s absolutely nothing to say that a 35-year mortgage term for a first-time buyer means they won’t be paying off their mortgage term for that full time period. Ask most people who own and I guarantee they will be saying that 25 years hasn’t necessarily meant 25 years of mortgage payments for them – it does at the start, it doesn’t have to at the finish.
Again, it is about options and, dare I say it, a ‘needs must’ approach at least at the outset of purchasing/owning a home, especially if your mortgage payments end up being less than you were paying in rent, and by opting for a 35-year term, you get into a home which you can make your own, add value, improve and be the one benefiting from any appreciation.
Given the situation we find ourselves in, if we can marry up high LTV product provision with options in terms of mortgage terms, then I think we are going some way to producing an environment within which more prospective first-timers can become actual first-timers. There seems little wrong with that to me.
Patrick Bamford is head of international business development at Qualis Credit Risk, part of AmTrust International