In June and July of this year, online mortgage broker Trussle saw a 182% increase in first-time buyer mortgage applications.
This figure sits amongst continuing news that the housing market is booming following the property lockdown earlier in the year.
In the first week of August, Halifax reported a 1.6% monthly increase in house prices in July 2020. This weekend, Rightmove announced its busiest month in a decade, reporting £37 billion worth of sales in July compared with £25 billion in the same month in 2019.
Despite the signs of recovery in the property market as a whole, the mortgage situation remains challenging for many, especially first-time buyers.
High loan-to-value deals are drying up
Although Trussle’s increase in applications shows that first-time buyers are keen to get their foot on the property ladder, the volume of applications that are being disqualified due to high loan-to-value (LTV) has increased by seven times since the previous period.
As well as this increase in rejections of first-time buyers, the amount of mortgage deals available to the group has significantly decreased.
Typically, first-time buyers have smaller deposits, so they require mortgages with higher LTV rates. But, in this time of economic uncertainty, banks are becoming reluctant to lend to borrowers with less than a 15% deposit.
Last week, Which? reported that the number of deals with a 95% LTV rate has decreased from 273 in March to just ten this month, and that the number offering 90% LTV has fallen from 446 to 34. With the UK now officially in a recession, it’s unlikely that the number of high LTV deals available will increase any time soon.
Deal one moment, gone the next
Another challenge facing first-time buyers is the volatility of deals that do exist. As mortgage lenders look to adapt to the unprecedented challenges brought by Covid-19, rates and criteria are changing quickly and often.
This can mean a prospective borrower is eligible for a certain loan amount with a lender one day, and then are deemed ineligible the next because of a criteria change.
What role has the stamp duty holiday played for first time buyers?
A recent move by the government to increase activity in the property market post-lockdown was to introduce a stamp duty holiday on properties worth £500,000 or less.
Announced in July, this policy was welcomed by estate agents and buyers. Zoopla shed light on the potential impact, reporting that nine out of 10 transactions would be exempt following the cut.
The impact on first-time buyers, however, is questionable. Before the announcement, first-time buyers were already exempt from stamp duty on properties of up to £300,000, and were eligible for a reduced rate of 5% on properties up to £500,000.
The holiday, therefore, is more likely to open up opportunities for next-time buyers than first-time buyers.
Beating the odds
With all the challenges that first-time buyers currently face, it’s certainly a concern that those with less than a 10% deposit could be locked out of the housing market.
However, there’s some positive news for those first-time buyers who can afford a 10% deposit or more. Trussle saw a 30% decrease in application times for this group when comparing the month before and the month following the stamp duty holiday announcement, suggesting that the mortgage process is moving more quickly.
If you’re a first-time buyer looking for encouragement during these uncertain times, it’s worth remembering that determination to save and hard work can get you to where you need to be.
I spoke to Samuel Hurley, 29, who bought a flat with his girlfriend Jessica Thorne, 28, in 2018, four years earlier than they had originally planned.
The couple’s 10% deposit on their North London home was £48,500, and was saved over five years. Their saving was accelerated significantly because Samuel started his own business whilst also working full time for Made.com. Novos, Samuel’s SEO agency, was built after 6pm on weekdays and during the weekend. “It was very long hours, but it’s all worth it now we have our own place,” he says.
Although many first-time buyers won’t find themselves in the same position as Samuel, his story shows that if you’re looking to buy a new home, it’s worth considering whether you’re able to save a deposit of 10% or higher.
This could give you more options when it comes to mortgage deals. Be prepared that in the current situation, available deals and criteria are changing regularly. It’s worth speaking to a mortgage broker to assess what options are available to you. Trussle’s guide also offers useful information about getting on the property ladder as a first-time buyer.
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