As the first lender back into the 95% mortgage market, our commitment to support brokers and their clients with just a 5% deposit could not be clearer.

First-time buyers – many of whom make up the smaller deposit market – are an integral part of our industry. But since the pandemic took hold products to meet their needs became some of the first casualties.

So, while we’re glad to be back, giving an underserved part of the market more choice, we’re well aware some potential borrowers will still have hurdles to overcome in order to take that first step on the property ladder.

Rising house prices and the need to raise a deposit while renting, for many, have long been key challenges for first-time buyers, and that was without a pandemic.

But even with higher LTV mortgages back in the mix, this only returns us to where we were 12 months ago, when 90% and 95% lending were the norm. One area that remains a barrier to many would-be buyers is affordability requirements.

The current regulatory stress testing requirements – whereby borrowers are assessed on whether they could still afford their mortgage at a rate 3% higher than the prevailing rate at origination, usually a lender’s standard variable rate (SVR) – was introduced in 2014.

And no-one could disagree it wasn’t done for the right reasons. On the back of the financial crash, it was a sensible policy decision which gave more protection to both lenders and borrowers and ensured prudent lending in a market where interest rates were expected to rise steadily in coming years.

However, we’re a decade on and for many reasons, we’ve seen the opposite happen – rates are lower now than they have been for a long time, meaning affordability calculations are out of line with where the economy is at.

Furthermore, no economic indicators currently forecast a rate increase of any significance, which will likely only be reinforced when the cost of the pandemic is factored in.

Unfortunately, that leaves us with the situation that the current stress tests, not deposits, may actually be stopping many first-time buyers entering the market, despite the fact their monthly rental payments are likely far greater than a mortgage payment would be.

We still need to be prudent and make sensible lending decisions – especially with the country emerging from the pandemic – but for those who want and could responsibly afford a mortgage, we welcome the Financial Policy Committee’s (FPC) decision to review the affordability test. It’s an area we feel the industry needs to address, and if we see a favourable outcome could really help first-time buyers.

Homeownership ambitions

Despite some of the hurdles first-time buyers face, their ambition for homeownership is unwavering.

Research we did last year shows almost three quarters of potential homeowners believe owning their own home is essential to feeling they had succeeded in life, and three in five said buying a home is more important to them now than it was before Covid.

We helped 30% more first-time buyers last year than in 2019, partly as a result of us being one of few lenders offering 90%, so it’s clear that demand is there, and with the current low rate environment, mortgages may technically be more affordable if we can start to address some of the other issues.

Combine that with many people saving more during the pandemic to help build up a deposit, and lenders like ourselves being keen to support those with smaller deposits, the outlook for first-time buyers is arguably strong.

The government’s recent introduction of the mortgage guarantee scheme gives further indication that helping people on to the property ladder is a key factor in the re-building of the economy post-Covid. Providing more mortgage choice to buyers stimulates competition, helps to keep rates low and in turn, supports reduced monthly repayments.

First-time buyers are the lifeblood of the housing market and as a lender, it’s important we go beyond just pricing a mortgage for them, but really understand the challenges they face.

Taking that first step towards owning a first home may feel more optimistic now than 12 months ago, but we’re hopeful when the FPC’s review is complete, first-time buyers are able to get even closer to achieving their homeowning ambition.

Jeremy Duncombe is managing director of Accord Mortgages