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Many potential first-time buyers are taking an unduly pessimistic view of their prospects of financing a purchase, leading them to abandon the idea of owning their own home before they start looking, according to new research from lenders.
Almost half (47 per cent) of people who were keen to buy had never spoken to a lender or mortgage broker to assess their financing options. But two-thirds (67 per cent) said they could make a purchase sooner than they had thought, after they were shown financing options.
The research by the Building Societies Association, which represents all 42 societies in the sector, said the response to its survey of 1,000 UK adults who were yet to buy highlighted “a clear gap between perception and reality”.
Paul Broadhead, head of mortgages at the Building Societies Association, said: “Too many aspiring first-time buyers assume home ownership is off the table without ever checking what is actually available to them.”
The research comes as lenders have been increasing the availability of low-deposit mortgages. Santander last week became the latest large bank to enter the fray, as it launched a 98 per cent loan-to-value mortgage for first-time buyers. Others, such as Nationwide, have eased the maximum amount that borrowers can take out as a proportion of their annual income, though these offers are typically aimed at home movers and remortgaging clients, rather than first-time buyers.
Moneyfacts, a finance website, said the number of options available to borrowers seeking a 90 or 95 per cent loan-to-value mortgage had risen in the past month, leading to a record number of deals available to borrowers with a 10 per cent deposit or equity. “This year is setting itself up to be a fruitful one for first-time buyers,” said Rachel Springall, finance expert at Moneyfacts.
The government last year urged lenders to do more to help first-time buyers. Responding to the latest research, Lucy Rigby, economic secretary to the Treasury, said: “Now that there are more attractive and flexible products on the market, it’s right that people are encouraged to have another look to see if there might be an option which works for them.”
Conditions for potential buyers in recent years have been tough. High inflation and rising rents in employment centres such as London and south-east England have hit their ability to save for a deposit. Mortgage interest rates peaked in 2023 at well over 6 per cent for a two-year fixed-rate deal, putting many potential borrowers out of contention.
Mike Ward, executive chair of Armalytix, a data intelligence company in the property sector, said it was not surprising many aspiring buyers were gloomy. “The consequences of years of lacklustre economic growth has resulted in people not believing that they will earn more or be promoted. So they think that the loan will be equally as expensive to them in five years’ time as it is now.”
Borrowers with little in the way of a housing deposit should also be prepared for intense scrutiny of their financial position from lenders, since banks and building societies have a regulatory duty to lend responsibly. “Once you move above 95 per cent LTV, then clearly a lender’s sensitivity to your income is much higher,” said Ward. “There may be very little wiggle room for the lender on the value of the collateral.”
The belief — justified or illusory — that buying a home is out of reach has effects on other life choices. The BSA research, which was conducted last month, found that one in five respondents said they were delaying marriage or a commitment to their partner, one-quarter were putting off starting a family and 18 per cent were holding off on starting a business until they had bought a home.
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