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First-time buyer demographics have changed

 

The latest report from the English Housing Survey (EHS), shows a shift in first-time buyer demographics: revealing a distinct change in the age, deposit size and source of deposit finance compared to a decade ago.

Highlights of the survey include:

  • One in five (21%) first-time buyers were aged between 35 and 44 years in 2015-16, up from 16% in 2005-06
  • In 2015-16, three-quarters (74%) of first-time buyers were couple households, a marked change from 2005-06 (66%)
  • Over the same period, the proportion of first-time buyer households with dependent children increased from 23% to 37%
  • Two-thirds of first-time buyers pay a deposit up to 20% of the purchase price, 29% getting help from their family (up from 22% ten years ago)

Source: English Housing Survey (2015-16) 

Research paints a different picture of first-time buyers

The EHS research paints a very different picture of the journey that some first-time buyers may go on when compared to ten or twenty years ago. By understanding these changes and the attributed factors, we can see why the knowledge, experience and guidance of mortgage consultants have become more valuable than ever before.

In 1995, around 20% of first-time buyers were aged 16 to 24. They may have raised funds for their deposit on their own, have submitted a single mortgage application, and they may not have had children at the time of purchasing their first home.

Fast forward to the findings from 2016 EHS, and you’ll find that there are fewer youngsters able to afford a house in the 16 to 24 age bracket. First-time buyers could be slipping into the 25+ bracket as it takes longer to save the level of deposit now required for their first home – house price growth has been outpacing income growth for more than twenty years. As a 25+ mortgage applicant, they may also be a couple and have children.

The hard facts

According to the EHS, Londoners are choosing to raise a deposit of up to £94,088 (mean value) to secure a favourable mortgage rate on their first home, with 29% turning to family to help raise funds ­– a 7% increase in a decade.

While working hard, saving even harder and raiding the bank of Mum and Dad, 74% of first-time buyers will have teamed up with another person and 37% will have children before they buy their first home ­­­– 8% and 14% higher respectively since 2006.

The EHS also found that those purchasing their first property were in the two highest income bands, now accounting for nearly two-thirds (66%) of first-time buyers, compared with 58% ten years ago.

How does this affect a mortgage application?

A mortgage consultant needs to take all of the changing demographics and factors into account, and Springtide Capital is no different.

A joint application, an older applicant, a larger mortgage and having children impacts affordability. A joint application, for instance, increases the amount of evidence of income required, but equally, it increases the chances of funding with two incomes instead of one. The age of the applicant and the period in which they require the mortgage is reflected in the affordability of monthly payments, as is the age restrictions and period of mortgage allowed by lenders.

The affordability of funding for a house (prices having outpaced income for many years) and the costs of running a household with children also needs to be considered. All this has to be reviewed by an experienced mortgage consultant, who not only works out the affordability but also the correct lender to suit an individual’s needs – it’s become more of a balancing act.

Henry Knight, Managing Director, Springtide Capital commented: “First-time buyers are an essential cog in the housing market machine: without them, the market slows – they allow existing property owners to release equity and re-invest in the housing market. At Springtide Capital, we pride ourselves on understanding a changing market and identifying which product and lender are suitable for each applicant.”

Marginal drop in post-referendum house purchase activity

According to the Council of Mortgage Lenders’ (CML) latest market summary, there has been a marginal decrease in house purchase activity following the EU referendum in June this year.

CML has estimated that gross mortgage lending was £21.4 billion in July, only a small decrease on June’s figures, but the first year-on-year drop for more than a year.

A year-on-year drop hasn’t gone unnoticed, as the Bank of England (BOE) has announced a “significant monetary stimulus, aimed at supporting the domestic economy during a protracted period of uncertainty and structural change.”

Economic snapshot

CML’s market summary reported that “the post-referendum economic landscape is not much clearer than a month ago. Some indicators are more backwards-looking or inherently volatile than others, and this makes it harder to gauge where things currently stand.”

On the other hand, the UK has a record proportion of working age people in work, the unemployment rate is down to 4.9% and retail sales rebounded strongly in July.

Henry Knight, Managing Director, Springtide Capital commented: “Although a decrease may sound negative, the UK economy actually seems to be fairing well following the referendum. We still have a long and unknown road ahead, however, we can take some reassurance in the fact that the Monetary Policy Committee (MPC) has a package to support financial pressures.”

The MPC package

According to CML, “the MPC unveiled a significant package of monetary measures in early August. Reflecting the transmission delays before the monetary policy takes effect, the Bank’s timing is designed to provide meaningful stimulus to our domestic economy as growth sags going into next year.

“As well as the widely anticipated 25 basis point reduction in Bank Rate to 0.25%, the Bank of England also announced a fresh round of quantitative easing – with £60 billion of gilt purchases and up to £10 billion of UK corporate bond purchases – and a new £100 billion Term Funding Scheme (TFS).”

How will this help?

Firstly, the base rate will no doubt help borrowing rates to remain low, which helps affordability for households and firms.

Secondly, lenders will have access to £100 billion over the next year at beneficial rates for four years – supporting the financial pressures that they will face. As a bonus, new lending may also be eligible for a matched amount of additional funding under the new package, encouraging new business.

Mortgages for barristers are no cut and dried affair…

 

Mortgages for highly skilled professionals, like barristers, form a vital part of the work that mortgage brokers carry out.

There is one reason – barristers simply don’t have time.

This is due to the highly specialised nature of the work they do and the unique circumstances under which chambers operate. The assistance of broker advice on mortgage product selection, and how to present earnings as part of a mortgage application, is invaluable to them.

Barrister mortgage applications are not always simple.

Not simple, but achievable, if you’re a broker who understands what mortgage providers are looking for. One of the main hurdles for a barrister mortgage application is presenting earnings accurately.

Sounds easy? Not really, lenders must be satisfied that an applicant can afford their mortgage – the remuneration of barristers in private practice is rarely a cut and dried affair. A barrister’s cash flow is often restricted by lengthy cases, debt owed by solicitors, the costs of chambers themselves as well as travel expenses and legal subscriptions.

All these act to cause significant underestimation of the net worth and earnings potential of a barrister, and can cause mortgage applications to be rejected.

Of course, if barristers had the time to thoroughly look into lenders’ requirements and preferences, to craft their mortgage applications accordingly, and then to follow up their applications with further responses to lenders’ concerns, then none of this would be a problem.

But long working hours, and heavy caseloads, often means that seeking expert advice and help from a qualified mortgage broker is a much more convenient option.

How can a mortgage broker help a barrister?

A qualified mortgage broker can help a barrister with their mortgage application in three main ways:

  • By recommending suitable mortgage products and advising on the likelihood that the barrister’s application for a particular product will be approved;
  • Presenting the barrister’s mortgage application to the lender in a way that emphasises the barrister’s true earnings;
  • Advocating on the barrister’s behalf in cases where the lender requires further evidence.

Because of their unique method of remuneration, barristers’ making mortgage applications by themselves are not adequately catered for by large financial institutions. A call centre operative at a bank for instance may not be familiar with the extra measures a barrister needs to take when presenting their application.

Mortgage brokers who have experience in mortgages for barristers on the other hand will have existing relationships with such organisations, will know how each lender likes to be presented with evidence of earnings, where each draws the line between an accepted and rejected application and how much room for negotiation there is.