Throughout 2023 we have seen a drop in house prices and a decline in mortgage approvals compared to last year. But a closer look at the numbers suggests that the first-time buyer market has held up stronger than that of second-plus steppers.
 

There are of course still big hurdles for today’s first-time buyers. In the 15 years that the BSA has run the quarterly Property Tracker, raising a deposit has been the biggest barrier to buying a home (apart from a short period during the Covid pandemic when job security became the most significant obstacle). In the last 12 months, however, there has been a significant change, with the affordability of mortgage payments proving to be an obstacle for almost three quarters (74%) of first-time buyers, compared to raising a deposit which is affecting 63%¹. This is not surprising when you see that the ratio of house prices to earnings across the UK is 6.4, rising to 10.1 in London.  Forty years ago the ratio was around 3, rising to about 4 in London.  Compounding this has been double-digit inflation figures, leading to a spiralling cost of living which has put further financial pressure on household incomes. 

Government Response

The government has provided some much-needed support to first-time buyers over the years, with a variety of schemes such as Shared Ownership, First Homes, Help-to-Buy, the Mortgage Guarantee, Help-to-Build and Rent-to-Buy, alongside other incentives, such as Stamp Duty holidays. These, to varying degrees, have given a boost not only to first-time buyers, but to the market in general – as a healthy first-time buyer market is essential to maintaining a functioning housing market. 

Lenders Innovations

Throughout their history, building societies and other mortgage lenders have remained alert to the changing opportunities and struggles facing first-time homebuyers, and have responded with products and innovations to support them. We have seen many recent examples of specifically targeted support, as lenders respond to today’s affordability issues. 

Skipton Building Society’s 100% mortgage lending aims to help the significant proportion of would-be homebuyers who find raising a deposit a struggle. They remain the only lender to operate in this space. The Cambridge Building Society has also aimed its support at those struggling to save the hefty deposits needed to buy a home, with its unique Rent to Home scheme. 

Leeds Building Society has focused some of its attention on the availability of homes for first-time buyers, by withdrawing from second home mortgage market. They have also invested in their scheme with Credit Reference Agency, Experian, to give a boost to the credit score of hopeful homebuyers, which can make the difference between getting a mortgage offer and not.  

More generally we have seen the industry review some of their basic criteria, such as loan to income ratios and the length of mortgage terms available.  Whilst traditionally a first-time buyer would take a 25 year mortgage term, since the financial crisis in 2008 we have seen longer terms on offer to help increase mortgage affordability.  Today the majority (78%) of first-time buyers take a mortgage term over 25 years, with 22% taking a term over 35 years.

Family Support

For decades, many first-time buyers from the wealthiest of families have received support from parents and grandparents, the so called Bank of Mum and Dad (BoMaD). However, in recent years, BoMaD has grown significantly, with £8.8 billion of assistance provided in 2022, effectively making it the 10th largest mortgage lender in the UK!

BoMaD is no longer the silver spoon provided just to those from more affluent backgrounds, family support is now given to almost half (46%) of all first-time buyers supporting the purchase of 170,000 properties. And it’s a growth area, as it is expected to increase to 61% this year.

To put this family support into context, the government’s Help to Buy equity loan scheme has supported 387,000 house purchases over 10 years.

Summary

So what does all this tell us, and how does it ensure we maintain an active and vibrant first-time buyer market in the future.

There’s no doubt that government schemes have a useful role to play, and have been helpful to the market. It was, therefore, good to hear Michael Gove, the MP responsible for housing, earlier this year pledge to prioritise first-time buyers over those with multiple properties, speculative buyers or those who wish to convert family homes into holiday lets. And we should welcome the Labour Party’s commitment to giving ‘first dibs’ to homes in new housing developments with a government-backed mortgage guarantee scheme if they are to come into power next year. 

But the market can often be better served with bespoke innovations from mortgage lenders. These provide much more targeted support to homebuyers, responding to specific, local issues rather than the blanket approach afforded by government schemes. It is crucial that lender innovations continue to focus on supporting the next generation of homeowners.

And of course, the financial support of BoMaD will continue to be needed to oil the wheels of all the schemes and innovations. 

¹ Property Tracker survey - https://www.bsa.org.uk/information/publications/bsa-property-tracker 

This article was first published in Mortgage Finance Gazette