Last year saw the housing market affected in ways which could never have been predicted. While restrictions in the UK are easing and we are seeing a return to normality, the market is still of great interest. Stamp duty incentives introduced in July 2020 resulted in a boom in the housing market, with house prices increasing by 9.7% to the year in May 2021, according to government figures, with this year looking to be one of the 10 busiest in over 60 years. But what effect has this had on first-time buyers, and how can lenders continue to support them and what are the options available?  

Saving for a deposit has been long known as the barrier to entry for many, however with rising house prices this has only become more difficult. The return of high loan-to-value (LTV) mortgage products across the market is important to support these types of borrowers. Many lenders are now offering 95% LTV mortgages, reducing the amount of deposit required. High LTV mortgage products are key to supporting the majority of first time buyers looking to enter the market.  

However, there will always be a number of first-time buyers (FTBs) who want to make that first step on to the property ladder but simply cannot afford the deposit required. This may be down to many things, from rising property prices pushing up the amount they need to save, or rental payments making it difficult and timely to get to their goal. There are other options available to support these borrowers, including 100% LTV mortgages. These are offered by several lenders such as Tipton & Coseley Building Society. Typically, branded as assisted mortgages, the amount of deposit required is dramatically lowered to 0% or some lenders will even offer a flexible deposit scheme. Flexible deposit schemes will allow the borrower to put down whatever deposit they can reasonably afford, even though this may not be the usual 5% or 10%.  

While these mortgages allow applicants to obtain a mortgage with little or no deposit, they very often require further support from a family member. This can be provided in a number of ways from depositing savings into an inaccessible account with the lender, to accepting a charge against their own residential property. While this can provide support to some, there may still be some who’s family members will not be able to facilitate this.  

To support them in entering the market, the government also have a range of options available. From boosted savings via the Help to Buy: Isa, or more recent Lifetime Isa, to equity loans, shared ownership and the new mortgage guarantee scheme – there are a range of options available. All do come with their own terms and conditions, which may be restricting to certain borrowers (e.g. equity loans are only available on new build properties).  

Other barriers can include affordability calculations. While these are imperative to responsible lending and ensuring the borrower can afford the mortgage they are applying for, borrowers can sometimes struggle to meet the affordability requirements of lenders. All lenders will complete this calculation and use these calculations to stress test the borrower against future interest rate rises. However, there are some differences: 

• Everyday living costs: while some lenders will ask borrowers to list each outgoing from gym memberships to utility bills, some will avoid this complexity by using Office of National Statistics (ONS) data instead.  
• Loan to Income assessment: historically, lenders would multiply a borrower’s income by a set amount and this would be the amount available for them to borrow. However, now all lenders will include a borrower’s outgoings in the affordability calculation. Some will deduct these from the income, then calculate the loan-to-income (LTI) multiple available, whereas others will complete the LTI calculation first. This can make a significant difference on the amount available to the borrower – example below: 

• Income (£60,000) – Expenditure (£12,000) = £48,000 x Income Multiple (4.49) = £215,520 
• Income (£60,000) x Income Multiple (4.49) = £269,400 – Expenditure (£12,000) = £257,400 

Finally, with the average age of FTBs at 31, many can be new to credit and so have not had the opportunity to build up a strong credit score. With credit scoring lenders, such as large high street banks, this can mean an automated decline for any mortgage application purely due to a lack of historic credit. An alternative approach taken by some lenders, usually regional building societies, is the manual underwriting process. This process means that lenders will review the applicant in a deeper light, looking at their credit history rather than their score alone. Doing this allows for lenders to take a common-sense approach rather than basing their decisions on automated scoring systems and can make it easier for FTBs to obtain a mortgage.  

So, while the market continues to be a difficult playing field for FTBs, there are lenders out there actively looking to meet the needs of this important part of the market. Higher LTV mortgages, personalised underwriting and strong, yet robust, affordability calculations will all play a part in putting these borrowers in their first homes.  

Richard Groom is head of mortgage sales at Tipton and Coseley Building Society