We can’t let first-time buyers slip through the cracks – Harrison
First-time buyers, and the difficulties they face in getting onto the housing ladder, have been back in the spotlight recently with the launch of a consultation into a new First Time Buyer ISA.
The proposed new ISA would replace the Lifetime ISA (LISA) with a simpler structure around the bonuses from the government and the removal of potential withdrawal charges.
Policymakers are absolutely right to acknowledge how big a challenge deposits present to homeownership aspirations. It is no secret that saving a decent deposit is one of the biggest barriers first-time buyers have to overcome, and so any initiative that makes the process a little easier is welcome.
But we need to recognise that the deposit is only one hurdle, as for some aspiring homeowners, there can be an unpleasant surprise even after they have managed to put enough money aside.
The ‘missing middle’
From working closely with brokers, and compiling our Near Prime Index reports, it’s become clear that there is a cohort of borrowers at risk of slipping through the cracks. They do not fit neatly into prime lender criteria, and that can leave them at risk of being poorly served when looking to raise mortgage finance.
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These borrowers do not quite hit prime requirements, but equally, they do not fall into the heavy adverse criteria either. Often, they fall foul of the odd missed mobile payment, or even having a thin credit file altogether, with not enough of a record of credit to assuage lender concerns.
They often have stable incomes and can more than afford mortgage repayments, but like many people today, they have struggled to save much more than a 5% deposit.
In effect, they are doubly disadvantaged. They are not just suffering because of their credit rating, or their lack of a large deposit, but because of both. They are having to overcome two barriers instead of one, just to take that first step onto the housing ladder.
The entire housing ladder suffers
This has significant ramifications for the rest of the housing ladder. The various rungs of the housing ladder do not exist independently – the ladder itself only functions if people can access that first rung. Otherwise, activity dries up, as existing owners struggle to move.
First-time buyers need more support, but that has to involve looking beyond focusing on the deposit alone. As lenders, we need to better understand those buyers slipping through the cracks, and where small changes can make a big difference to their prospects.
The clear feedback we have had from brokers has been the need for more options for their clients who fall outside of prime criteria. Lenders have been criticised for treating all ‘non-prime’ borrowers the same, irrespective of how minor or significant the credit blip, and that needs to change. So too does the way lenders judge borrowers who don’t have a comprehensive credit record – the focus needs to be on making sure they can still access fairly priced finance, rather than locking them out of homeownership because they haven’t had a credit card before.
Deposits will be part of that solution too – we recently increased the maximum loan to value (LTV) available on our near prime products to 95% for precisely that reason – and a true first-time buyer ISA could be an effective boost.
But we need to ensure that near prime and high LTVs are handled together, rather than as separate conversations. A modest deposit and a light credit history often go hand in hand, so if we want to improve the prospects of the next generation of first-time buyers, the support on offer should be similarly joined up.
