Ongoing complexity in the first-time buyer market

Now I tend to mainly write about buy-to-let related activity but, when recently scanning the Financial Reporter homepage, there were two news items nestled beside each other which caught my attention. These centred on the residential market and really hit home some of the issues facing potential purchasers, especially first-time buyers.

The first was a survey from Ipswich Building Society which suggested that 64% of first-time buyers have a second source of income to help them save for a deposit, with this figure rising to 85% in London. On average, the earnings from this extra work account for two-fifths (39%) of a deposit. With a typical first-time buyer deposit sitting at almost £59,000, that works out at £23,020 being generated from these so-called ‘side hustles’.

62% of first-time buyers doing extra work claim they would not have been able to save for a deposit without this extra income, while 63% believe it has enabled them to purchase a property sooner. Of those prospective first-time homeowners who disclosed a side hustle, a third (32%) have started a business, half of which were related to their main job, and half starting a venture unrelated to their current employment. Other common forms of side hustle included taking on informal work such as a bar job at weekends in addition to their main career (23%), or using skills from employed roles to earn extra money on the side (22%).

The second news story emerged from Trussle which outlined that just 1% of its July mortgage completions were generated from 95% LTV mortgages. While the firm said that it has experienced a large number of enquiries around 95% LTV mortgage deals, peaking at 26% of all new mortgage enquiries in March, few have been successful in their application. However, while 95% mortgages are struggling to make an impact on the market, other high LTV mortgage brackets are seeing significant demand from consumers. 90% mortgages in particular was suggested to have been a popular choice for those needing higher LTV products. This accounted for 10% of Trussle’s completions in June, the highest level since August 2020.

The issue of raising a deposit remains a significant one, especially in a period where house prices have risen at such pace. With rental costs also high and the pandemic impacting the many finances situations – whether over the short, medium or longer-term – then it’s little wonder that potential borrowers are having to extend themselves to generate alternative revenue streams to bolster saving pots. The lack of 95% LTV conversion is also a concern. This LTV band offers a valuable window of opportunity for many borrowers but it appears that stricter lending criteria continues to block this route for a large proportion. This is an area where we need to see real progression but only whilst maintaining responsible lending boundaries, after all the last thing we want to do is revisit mistakes from the past. This conundrum outlines why the mortgage market remains so complex in part, and just how important the advice process can be in helping a range of borrowers to achieve their property-related aspirations.