Stamp duty ‘has to go’ as advisers adapt strategies to help first-time buyers navigate affordability issues
Mortgage advisers are increasingly relying on a mix of flexible lending strategies and alternative products to attract first-time buyers as affordability challenges continue to reshape the UK housing market.
While the Bank of England has held interest rates steady in recent months, buyers and advisers are being forced to adapt as lenders continue to adjust their pricing.
Brokers say demand remains steady among young savers looking to enter the property market amid a shift in expectations.
READ MORE: What strategies and products are mortgage advisers using to attract first-time buyers?
Ashley Lambert (pictured top left), mortgage and protection adviser at Lincolnshire-based Your Mortgage Hub, said movement among first-time buyers has changed recently.
“There was a lot of anticipation with rates rising and people being a bit put off by rising costs in the UK,” he said. “People were thinking they would just stay at home and save for another year, but that tipping point has probably passed. They have run out of patience a little bit, and they’re now going ahead.”
That is the best approach for buyers to take, Lambert suggested, with interest rates unlikely to return to previous levels below 2%.
“Gone are the days of a 1% or 2% interest rate,” he said, adding that there is an expectation rates will flatline at around 3% and become the “new norm” over the next couple of years.
Deposit and financial literacy challenges
While demand has remained stable, advisers say affordability continues to present a significant challenge for prospective buyers, with saving for a deposit a major hurdle.
“The biggest challenge is getting the deposit together,” said Denni Tyson (pictured top right), founder of DT Financial in Kent.
READ MORE: First-time buyers rethink the rules as affordability bites
Savers are increasingly being forced to lean on family members to help them raise the necessary capital for their first home, Tyson added. “It’s become more common to go to the bank of mum and dad. It’s not a given, but my god does it help to get you going.”
A lack of understanding can add a further complication for buyers looking to enter the market. “There is a lack of financial literacy and knowledge with first-time buyers,” said Tyson.
“It’s an enormous process from start to finish. You become the focal point. They come to you with everything and you have to guide them through it.”
While social media has helped improve understanding to an extent, Tyson warned there is a “frightening” amount of misinformation being fed to young savers online.
Education system has role to play
For Lambert, encouraging prospective buyers to take control and manage their spending is important in helping combat affordability challenges.
“If I had children now at the age where they were saving, I would always get them to question whether what they're buying is actually what they need,” he said.
The education system taking a more hands-on approach could also help improve matters, Lambert suggested.
“As a father myself, I want my kids to understand credit cards, loans, interest rates, minimum payments on credit cards, and how it can have a snowball effect where you just can't get out of it.”
Lenders becoming more flexible
While rates present a stumbling block for buyers, lenders have made some adjustments to help them enter the market, particularly around borrowing limits.
“I think from the bank's perspective, lending income ratios have become greater, with six times your income quite common to see,” Tyson said.
A Joint Borrower Sole Proprietor (JBSP) mortgage is an option to potentially boost borrowing power, but Tyson suggested buyers don’t typically want to go down that route, opting instead to have a “clean slate” when purchasing their first home.
Tyson pointed to Nationwide’s “Helping Hand” as one of the schemes providing first-time buyers with an opportunity to get on the property ladder.
“That is probably the big one helping buyers,” he said. “That's been around for years now. It gives you a boost of lending, where if you earn a certain amount in a joint household, it lends you more on a five-year fixed basis.”
Shared ownership proving popular
Alongside the Help to Buy ISA, the government-backed shared ownership scheme is popular among buyers, according to Lambert.
“It gets your foot in the door,” he said. “You mortgage only a portion of the house. You might even only mortgage 25% of the house and pay rent on 75%, which seems a little bit backwards, but it just boosts your chances of getting on the market.”
The scheme is ideal for savers struggling to enter the market, added Lambert, as it provides them with the opportunity to increase their share in the property as their income increases over time.
Tackling stamp duty
Brokers say stamp duty, which first-time buyers only pay on properties above £300,000 in England and Northern Ireland, must be removed to help savers.
“It has to go for first-time buyers,” Tyson said. “I just think that is the most ludicrous policy for [property] above £300,000.”
He added that removing stamp duty would allow buyers to put the extra savings towards their legal fees, taking away one element of the affordability challenge prospective homeowners are currently facing.
