9 minute read
Interview What’s ahead for first-time buyers?
First-time nerves
Caught up in the recent anxiety surrounding the UK economy, first-time buyers have likely felt as stressed as anyone. Mortgage Introducer spoke with two brokers to get their takes on the current first-time buyers’ market
Richard Campo
Richard Campo is founder of Rose Capital Partners, a London-based mortgage and protection brokers that set up in 2014, specialising in dealing with higher earners with more complex incomes.
“I bought my first place in 2007– a one-bedroom, ex-local authority flat in Battersea – just before the property market crash in 2008. To be fair, I probably could have bought sooner, but it was the early noughties and I did a lot of partying. I didn’t sell it until 2012, and by that time it had risen significantly in value. Usually, if you hold a property for 10 years or more, you will most likely sell it for more than you bought it for, so my suggestion would be to buy as soon as you can afford to.
“As brokers we are here to educate people so that when it comes to deciding on a mortgage product, they will be fully informed and make the right decisions. Typically, our first-time buyer clients are usually early-to-mid-30s, and mostly they are couples, because it’s difficult to buy as a single person, as there aren’t many properties in London and the other areas we operate in for under half a million pounds. It’s tough to raise the finance, so you really need two incomes to make it work. This means that most people are buying later and buying bigger. It’s been quite a pronounced trend over the last few years – missing out that first step, saving up for longer, and buying a bit later.
“I find some younger people’s attitude to money unusually guarded, whereas in the past I definitely recall clients being more open with each other if they were buying together. I can tell you of multiple occasions of couples who are buying together for the first time who don’t know what each other earns. You’ll share a home with someone, but you don’t know what their financial position is, which is not ideal when you’re looking at securing a mortgage together.
I would say that well before entering a broker’s office to discuss your lending options, couples buying together need to have an open and honest conversation about their finances first, so that everything is on the table – outstanding debts, loan commitments, income,
outgoings, and so on.
“What I think is the really relevant point about house prices coming down that people are missing is that lenders are tightening up their criteria. We’re used to an ultra-low rate environment where clients are getting five, five and a half times’ their income. So, if banks will now only offer around four and a half times’ your income, that’s a 20 per cent drop, give or take. Even if house prices correct by 10 per cent and lenders tighten by 20 per cent, you’re frozen out of the market. That half-a-million-pound loan is now actually only £400,000, and you can’t afford what you wanted. I think this is a very real risk for firsttime buyers.
“Therefore I would strongly recommend that clients carry on with their buying plans, because the lending environment is only going to get tighter. The reality is that if the base rate is at four per cent or five per cent, you’ve already missed the boat, and this is a very difficult message to get across. Instinctively, why would you buy in a falling market? But I would respond by suggesting that it’s better to buy now or never at all because from 2024 onwards it’s only going to be more difficult. My worry is that there’s a real risk in the next year or two that first-time buyers who don’t move quickly could end up getting frozen out in totality. And, let’s face it, living with your parents is pretty naff, so buying and getting on the property ladder is the better option. I think any first-time buyers who don’t make their move now will regret not taking the opportunity when they could.
“I understand that there are worries about the risk of negative equity, but this chance is very slim, because if house prices do go down five or 10 per cent and you’ve put down a 10 to 15 per cent deposit, you’re not going to fall into negative equity. And even if you do find that you fall into negative equity, chances are that the impact will be negligible, because if your house price has fallen and you need to move, then the price of your next house will have gone down, too. I also strongly believe that your home isn’t an investment. You can’t eat equity! So it doesn’t matter if house prices double or halve, because it’s your home and that’s what is most important.
“So what are the options for first-time buyers? Well, it’s about what can you afford and what your alternative is. In the buy-to-let market, we are seeing increasing numbers of landlords selling up, so there will be fewer rental properties available, which will push rents up higher. So if you simply sit and wait, and your rent goes through the roof, how on earth are you going to save a decent deposit to be able to buy?
“I think what would really help the situation for younger people who currently can’t afford to buy is if the government started building homes again and made these available to first-time buyers. The benefits are twofold. You get cheaper property coming onto the market, built to a good standard, so the government then alleviates the housing problem, plus you create a bunch of jobs in the interim. There’s no downside.
“My opinion is that fortune favours the brave. Anyone buying with all these headwinds, political turmoil, and financial market instability, if they’re brave now, I think they’ll look back in five years and say, ‘Yes, that was a great idea. I’m really glad that I did that.’ Prices are soft now as well, so buyers can always agree a deal, particularly if house prices come down five per cent next year as predicted.
“This a really great litmus test. Everyone thinks the market is expensive – but speak to your parents, speak to your grandparents. They’ll tell you that they were stretched to buy their first place and it was disgustingly expensive. Nothing ever changes.”
Tara Panayi is an executive mortgage broker with national brokerage Just Mortgages. Based in Cardiff, Panayi was named best broker for first-time buyers at the British Mortgage Awards in 2019 and 2022.
“My first property was with a housing association shared-equity scheme. I was 24 and a single parent, and that was my route to getting onto the property ladder. I then managed to pay off the housing association share after the five-year period.
“I was a mortgage adviser, and if I hadn’t been I wouldn’t understand a lot of the terminology that brokers use. It is really about breaking things down into layman’s terms for people to really understand and appreciate the entire process. And, also, making sure that they’re protected should the worst happen, looking at different insurance policies.
“About 70 per cent of my business is first-time buyers. It has been very
Tara Panayi
difficult. There is definitely a lot of uncertainty with my clients at the moment as to whether they should hold off to see what will happen in the new year.
“After the mini budget, we had a lot of people pulling out of properties, deciding that they didn’t want to go ahead because they were worried. I had at least 10 to 20 calls a day during that week from buyers worrying that lenders were pulling their mortgage offers, which wasn’t the case.
“I could have spoken to somebody four months ago, giving them an idea on what their payments would have been, and they’re around £200 pounds more a month now.
“I would never advise a client to go ahead or to hold off. It is more to do with their situations and what they’re comfortable with, and I need to be comfortable as well that they can actually afford it, especially with the increases in the cost of living.
“First-time buyers now may be more inclined to look at some tracker and discounted rates, as opposed to fixing, which hasn’t really been on the cards for a long, long time. The difference in pricing is significant.
“What I’ve noticed more recently is that the loan-to-value doesn’t really have an impact anymore on the interest rate. So I could have a first-time buyer with a 10 per cent deposit and another client with 25 per cent deposit, and their interest rates will be very, very similar.
“For a first-time buyer, there really isn’t any need to panic. I think the panic is more understandable for people who are in an existing property and their interest rate is coming to an end and they’re seeing a real change in their payments.
“People don’t just want to live in a house, they want a home, and they want to have a life as well. So I think the budget planner, which every broker should complete, is imperative at the minute to make sure that they can feel comfortable that once those clients have moved in, they’re not going to have any issues in repaying that mortgage.
“I would say for brokers not to panic, and to persevere and really just look at all opportunities for business. There’s peaks and troughs in this job – it’s never plain sailing – and you’ve just got to ride the wave.
“Lenders need to be looking at affordability and understanding that there are a lot of sole first-time buyers who cannot purchase a property at the moment. They need to be more innovative with their products and options available.
“I think next year will be pretty similar to this quarter. I do feel interest rates will stay the same, but things may start to settle toward the end of next year.
“I do spend a lot of time with my first-time buyers and try to handhold them through the process. Seeing clients on completion date, collecting their keys, it’s just a wonderful feeling – you know, getting people out of paying really, really high rent and owning their own property.
“A lot of my clients send me selfies outside of their new properties, and that feeling is lovely. It’s helping people achieve their goals. I think the majority of people want to own their own property, and it’s a huge step for anyone at any age. It’s nice to be a part of that life’s journey.” M I
“I would never advise a client to go ahead or to hold off. It’s more to do with their situations and what they’re comfortable with, and I need to be comfortable as well that they can actually afford it, especially with the increases in the cost of living” – TARA PANAYI
