Given everything that has happened both politically and economically recently, it is easy to forget we are seeing the last few weeks of couple of government-backed schemes designed to get first-time buyers onto the ladder.
The most obvious – and most successful – is of course Help to Buy. And while the official date for it to finish is meant to be end of March next year, in reality those wanting to take part in the scheme have until the end of this month to register their interest.
The good news is that we do have a number of ‘replacement’ industry-backed schemes up and running, such as the insurance backed Deposit Unlock. I was recently up in Newcastle with the team at Newcastle Building Society who were the first lender to embrace Deposit Unlock. We were visiting a new-build development, Church Fields in New Hartley by Barratt homes where a growing number of first-timers are benefitting from this scheme and indeed where the first completion had taken place.
When Help to Buy ends this is undoubtedly the type of scheme we need to grow, and we need more lenders and especially more builders to join. This provides that conduit for first-timers and new-build purchases. We shouldn’t need to rely on government schemes if we can grow Deposit Unlock and many of the innovative private schemes that are coming to the market.
However, we need more activity in the first-time buyer area right across the piece, not just on new-build properties. The actions of the government within its ‘Mini Budget’ have undoubtedly made it harder for first-time buyers to get on the ladder, resulting as it has in significantly increased rates, tighter affordability measures and higher stress tests.
It means that, even those with larger deposits, are going to find it either very difficult to secure a mortgage in the first place, or if they can get one, then they are likely to get a smaller maximum loan and have to pay significantly more for the privilege.
And that is the situation for those with larger deposits? What about those with only 5% deposit to put down? Well, they have seen their product choice cut by close to 70% and those that do remain are again priced much higher than they were just a couple of weeks ago.
In years to come, I think we will stop and review this time period and wonder whether anyone involved in this ‘Mini Budget’ had truly thought through the potential consequences for the mortgage market, but particularly for those wanting to purchase a first home, and of course those who are coming up to the end of their special mortgage deals.
However, back to Help to Buy. It has done its job, builders had confidence to build and in serious numbers and while the overall numbers were not as high as originally predicted many thousands of people now have their first home.
Certainly, and judging from the initial anecdotal evidence I am seeing, the increase in mortgage rates – particularly for those with smaller deposits – is going to have a significant influence on the number of first-time buyers coming to market over the short-term.
I am aware that swap rates have calmed slightly, however you wonder what the reaction will be when the Bank of England MPC makes its next BBR decision, and just what might be required over the course of the next year if all the predictions come true. That said, if inflation can be brought down – and the energy cap is likely to do this – then my hope is that rates do not have to rise by as much and as quickly as many within the markets have been anticipating.
That is very much a watching brief, but it still seems somewhat obvious that first-time buyer numbers could tail off – particularly through the rest of the year – as many people who thought they were in a position to buy realise the market change has taken this out of reach.
Again, with Help to Buy finishing and the end of the government Guarantee Scheme we have to be watchful in terms of mortgage lenders’ continued commitment to high LTV mortgages. Many products which were pulled in the immediate aftermath of the ‘Mini Budget’ debacle have not returned, so it is to be hoped that the appetite to lend in this space has not been dealt a permanent blow, and we continue to see such product options available even if (initially) the price will be higher.
One way of course lenders can continue to be active in this space, is to utilise private mortgage insurance which can help them mitigate against the perceived risk of lending to first-time buyers, plus it can be used to keep rates competitive, especially in this environment.
Overall, if we do see substantial drops in first-time buyer activity over the coming months, then there is likely to be more voices calling for further government support and intervention. This in my view would be the wrong move; the industry as a whole has the ability and innovation to develop products for first-time buyers and mitigate the associated risks. The question is, are they willing to without government support?
Patrick Bamford is head of international business development at Qualis Credit Risk, part of AmTrust International