Making the first step onto the property ladder is difficult for first time buyers (FTBs) with many obstructions standing in their way.
The home mover market has started to slow, with less existing homeowners looking to move even fewer properties are becoming available on the market. The gap between supply and demand is causing house prices to rise with The Council of Mortgage Lenders (CML) expecting average house prices to grow modestly during 2017. As a result of rising house prices FTBs will need to fund larger deposits to be able to make that all important move.
The size of deposit needed is a substantial barrier to FTBs with 72% stating that they anticipate having to source additional funding from friends, family or Government schemes to supplement their own savings. But whilst it is well documented that the bank of Mom and Dad is making a significant contribution in assisting FTBs, families are not always able to help FTBs gather the money they need to get onto the property ladder. Of those FTBs saving, only 6.2% believe that their family members would gift them enough money to support the full deposit. The average deposit for a FTB is 17% of the purchase price which means if they are looking to buy a property worth £150,000 they would need to have a £25,500 deposit to meet this average. Although there are many benefits that come with larger deposits, such as cheaper monthly repayments and more product availability due to a lower loan to value, the reality is that this is difficult and unrealistic for FTBs to save.
There are now many schemes and products available from both lenders and the Government to help FTBs make the first move to becoming homeowners. Government schemes include the Help to Buy: Equity Loan and the more recent Help to Buy: ISA offering savers a 25% bonus on the money saved towards their first home (terms and conditions apply). Many lenders have also introduced mortgages to help FTBs become homeowners with some lenders not requiring a deposit, for example Tipton & Coseley’s 100% Family Assist Mortgage which allows family members to help FTBs step onto the ladder without having to gift a large amount of money. With so many opportunities available how do first time buyers know what scheme is right for them?
Regardless of the industry’s support available for FTBs, the recent jump in CPI inflation may cause concern as to the Bank of England’s Monetary Policy Committee’s (MPC) response and the possibility of interest rates rising. This would affect FTBs who are looking for a variable/tracker mortgage as monthly repayments could be higher. Also, if lenders were to increase their Standard Variable Rate in line with any possible interest rate rises affordability tests may be affected.
Despite all the barriers and risks in the way of FTBs, CML found that lending to FTBs who have taken advantage of Government schemes remained strong during February, in spite of gross mortgage lending falling by 8% from January.
With this in mind, is there more intermediaries and lenders can do to help FTBs make the first step onto the property ladder? Should there be advisers on hand to help FTBs plan to save for their first home and how to make the most of what schemes are available to them.
Sources
http://iress.com.au/uk/resources/blogs/iress-commentary-latest-cml-figures1/
https://www.cml.org.uk/news/press-releases/gross-mortgage-lending-182-billion-in-february/
This article has been written by The Tipton & Coseley.
