The mutual benefits for first-time buyers

The challenges facing first-time buyers trying to get a foot on the property ladder have been well documented over the years. Rising house prices, high living costs and stagnant wages coupled with supply and demand issues have all contributed to the challenges first-time buyers face in purchasing their first home.

For some, the biggest obstacle has been saving for a deposit as house prices continued to escalate, while others may have found themselves outbid on their dream property or unable to pass affordability measures.

In the post-pandemic economic climate of rising interest rates and high inflation, these challenges have been further exacerbated with fewer high LTV mortgage products available in the market and the increased cost of borrowing both adding to the woes of the first-time buyer.

With house prices still at an unaffordable level for many and affordability pressure at an all-time high as a result of the cost-of-living crisis, many brokers may find themselves with first-time buyer clients that think their chances of purchasing a property remain slim.

However, the mortgage industry is constantly looking at ways to help get first-time buyers onto the property ladder, so it’s important that brokers familiarise themselves with all available mortgage products and government schemes in the market.

Government schemes such as shared ownership and First Homes England for example, are both excellent ways for first-time buyers to begin their homeownership journey by allowing them to purchase a share of a property, which they can increase later, or buy a property at a reduced rate.

Under the shared ownership scheme, first-time buyers can take out a mortgage to buy a share of a property owned by a housing association or local council and pay rent on the rest. Deposits are typically between 5% and 10% of the share purchased, so less of an initial outlay, and over time, the buyer’s share of the property can be increased.

For brokers with first-time buyer clients who would still prefer to own a property in its entirety, the First Homes England Scheme provides an alternative solution. Qualifying first-time buyers can buy a new home from a developer using the scheme at a reduced rate of 30% to 50% off the market value, with a ceiling price of £420,000 in London, or £250,000 anywhere else in England, after the discount has been applied.

For those first-time buyers fortunate enough to have family members to help them out financially, there are also a number of purchasing options that brokers can consider depending on the varying needs of their clients. A joint borrower sole proprietor (JBSP) mortgage for example, allows parents to use their employment income as a way to increase their children’s borrowing potential by combining the incomes of up to four family members.

This enables would-be homeowners who would otherwise be unable to purchase a property on their own to get onto the housing ladder and although the supporting borrowers are named on the mortgage deeds, they have no legal ownership of the property itself.

Other solutions such as a family deposit mortgage allow first-time buyers to purchase a property by having a family member guarantee a deposit of up to 20% of the purchase price as a cash lump sum into a savings account or as a charge against their own property, which is then released once there is enough equity in the property.

Of course, purchasing a smaller property such as a flat can also be a more affordable route for first-time buyers and these are often more plentiful in cities and towns where younger first-time buyers may prefer to live. To aid this quest, we recently extended the lending criteria on our residential, buy-to-let and shared ownership product range to include flats, which will also widen the purchasing options for many first-time buyers looking to get onto the property ladder.

For brokers with clients looking to take that first step on the road to home ownership, a myriad of solutions remain available and this variety of offerings is where the building society sector really does continue to shine.