A fresh burst of mortgage innovation is needed to help first-time buyers achieve their homebuying dreams, says Hiten Ganatra. Here he looks at some potential solutions and runs through the mortgages already helping people onto the property ladder
Over the course of the last 12 months, the UK has experienced a period of significant change.
Three Prime Ministers, rising inflation, soaring energy prices and a cost-of-living crisis have forced many consumers to cut back on non-essential items as they experience a squeeze on income unseen for decades.
Against this backdrop of change, the UK mortgage market has experienced a significant period of volatility, with interest rate hikes, product withdrawals, pipeline delays and rising concerns about affordability. It’s created a tumultuous environment where uncertainty and anxiety are more commonplace.
For many homeowners, the increase to the cost of borrowing has led to concerns about the ability to meet mortgage repayments while for first-time buyers (FTBs). It has served to further exacerbate the challenges of saving for a deposit or getting onto the property ladder at all, especially since the government scrapped its Help-to-Buy (HTB) scheme.
First-time buyers need new and innovative mortgages
However, while government-led initiatives such as the HTB scheme have proven to be successful, I believe it is time the mortgage industry moved away from its reliance on government-aided solutions and came up with new ways to stimulate the market.
It needs to create innovative products befitting the modern-day borrower by drawing on the equity held in the homes of parents and grandparents.
The UK housing market was worth £8.41 trillion at the end of 2021, according to Savills, and Office for National Statistic (ONS) figures show that 36% of properties in the UK are owned outright.
This means there is a significant amount of equity held in UK property that could potentially be tapped into should lenders be brave enough to get creative with their product solutions.
Given the fact that saving for a deposit is perhaps the biggest hurdle facing many FTBs, designing more products that address this problem would certainly go some way in helping those whose expectations have been reset in the new higher interest mortgage world.
What innovative mortgages already exist for first-time buyers?
Admittedly, there are some innovative products that combine the borrowing potential of family and friends already in the market. Take Barclays Springboard, which allows borrowers to use the savings of family or friends as a deposit by placing the equivalent of 10% of the property price into a savings account as security for a period of five years.
This means the buyer can maximise their borrowing potential by taking out a loan for the full purchase price of a property. It not only eliminates the need to save for a deposit, it also provides the borrower with more equity for their new home.
Other solutions such as Joint Borrower Sole Proprietor (JBSP) mortgages are available from a handful of mortgage providers and allow borrowers to combine up to four income sources of family and friends to boost borrowing potential, without the donors owning a stake in the property.
This means they will not be named on the deeds and therefore have no stamp duty liability and can be repaid further down the line when the purchaser’s financial situation changes.
While products such as these are indeed innovative, they are sadly both under-utilised and few and far between.
Not only do customers need educating on these available options by seeking advice from brokers, the market also needs more lenders to jump on board and develop products that help provide genuine solutions to the challenges FTBs are facing.
This includes designing products that can draw on the equity held in the property of parents and grandparents thereby reducing the pressure on FTBs to save for a deposit while simultaneously helping to reinvigorate the UK housing market.
Hiten Ganatra is MD of Visionary Finance
This is exactly what we specialise in at Tembo (tembomoney.com), where we’ve seen an annual uplift of 48% of family-related queries. Products like JSBP & Deposit Boost (leveraging equity in a home to create a deposit) are helping to make homeownership more accessible. Bank of Mum and Dad support is no longer only for those that have lump sums of cash to spare.
I came across a company called Keyzy that is innovating in this space by helping first time buyers onto the housing ladder. They seem to buy the property for them and let them buy it back later for the same price. Seems quite nifty.