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Barriers to home ownership

The plight of first-time buyers has been a matter of concern for some time now. With COVID19 restrictions ongoing and Brexit around the corner, it looks like life could be about to get even tougher for (potential) first-time buyers. Here are some of the challenges they may face – and what might be done to help them.

Raising a deposit

Back in 2017, Lifetime ISAs were introduced to help people save either for their first home or for a pension (or both). In response to the impact of the Coronavirus pandemic, the government changed the rules on Lifetime ISAs to allow borrowers to withdraw funds without an active penalty. In other words, borrowers lost the government bonus but did not have to pay the 5% withdrawal fee.

Once the UK has established a post-COVID19 “new normal” (and possibly after Brexit if that is later), it might be feasible to reassess the Lifetime ISA situation and see if there is any way to use it to help undo the damage of the pandemic (and, if relevant, Brexit).

At the very least, the government could look at ways to make it possible for people to “get back where they were”, even if they can’t afford to replace the money they withdrew during this financial year. It may even be possible for the government to increase the savings limits (and corresponding bonus) and/or the length of time over which first-time buyers can save.

Satisfying the affordability criteria

The Mortgage Market Review obligated lenders to stop making lending decisions purely on headline data such as income and, instead, to look in more detail at a potential borrower’s ability to afford the loan in their personal circumstances. Making this work in practice requires being able to make reasonable predictions about what the future is likely to hold for the person in question. This could be extremely challenging in a post-COVID19/peri-Brexit environment.

On the one hand, nobody wants to see a return of the behaviours which led to 2008. On the other hand, nobody wants to see buyers, especially first-time buyers, frozen out of the market due to lenders being unable to offer them any flexibility in case they wind up on the wrong side of the FCA. Again, this looks like an area where parliament could potentially assist.

The government has already extended the Help to Buy Equity Loan scheme albeit only for first-time buyers. This could possibly be expanded further, albeit with appropriate caution. For example, the rules could be adjusted to allow for the purchase of existing properties. This could open up some interesting opportunities for first-time buyers such as the option to take on former investment properties, perhaps even the homes they are currently renting, or even to buy properties in need of refurbishment.

Dealing with the fear of a market downturn

Buyers, especially first-time buyers, may be wary of buying into the property market in the near future for fear that the property market will be hit by a slump or, even worse, by a crash. While these fears are understandable, they are also a sign that buyers need to be educated about the realities of property purchase.

In particular, property professionals need to ensure that buyers are clear about the fact that property should be seen as a long-term investment purchase rather than a short-term impulse buy. They should expect periodic fluctuations in the market, including occasional, sharp, downturns, and be prepared to ride them out.

This may involve working with the broader financial services industry and maybe even the government to ensure that first-time buyers have the necessary financial education to understand the financial practicalities of home-ownership.

Your property may be repossessed if you do not keep up repayments on your mortgage.

For Investments we act as introducers only.

The FCA does not regulate some forms of Buy to let Mortgages.