Barriers to homeownership – Could new build First-Time Buyer schemes be the solution?
By Bluestone Mortgages
As rising house prices and inflationary pressures continue to affect the economy, the dream of owning a home is becoming increasingly difficult to achieve for many prospective buyers.
A recent report from Bluestone Mortgages, in collaboration with Pegasus Insight, provides an insightful look into the significant obstacles that first-time buyers in the UK are facing.
The report identifies the five key barriers that first-time buyers face:
- Affordability and cost of living (37%): The ongoing cost of living crisis, now entering its third year, is the biggest challenge for nearly two-fifths of first-time buyers. Inflation, rising costs for essentials, and stagnating wages are all contributing to making it harder for potential buyers to save enough to afford a home. General affordability, therefore, remains the largest hurdle for most.
- Raising a large enough deposit (34%): The second most pressing issue is the ability to gather a sufficient deposit. According to Statista, the average first-time buyer deposit in the UK was approximately £53,414 in 2023. However, in Greater London, this figure can more than double due to the region's higher property prices. Buyers are expected to provide as much as 19% of the property value, making it a steep challenge for many.
- Insufficient income to get a mortgage (33%): Closely tied to the deposit issue is the struggle to qualify for a mortgage due to low or insufficient income. One-third of first-time buyers report that their earnings are not enough to secure a mortgage, leaving them unable to step onto the property ladder.
- High house prices in the area (32%): Over 30% of respondents point to the high cost of homes in their desired areas as a significant barrier. In particular, housing affordability in major metropolitan areas like London is a severe challenge, making it difficult for many to even consider entering the market.
- Rising mortgage interest rates (27%): With mortgage interest rates higher than they were in 2022, more than a quarter of first-time buyers are struggling to manage monthly payments. This adds an extra financial burden, making it even harder to achieve homeownership goals, especially when combined with existing affordability concerns.
In addition to the top five barriers, the report highlights broader struggles faced by first-time buyers, including the lack of awareness of available financial assistance programs. Notably, fewer than 10% of prospective buyers were aware of schemes like Deposit Unlock, which can help ease the burden of the initial deposit.
Deposit Unlock is an innovative mortgage guarantee scheme created to help borrowers secure a new-build home with a deposit of only 5%. As the only complex credit lender to offer the Deposit Unlock scheme, first-time buyers can apply for a 95% LTV new build mortgage with a deposit of only 5%. The scheme applies specifically to new build houses and flats from selected developers.
The Deposit Unlock product range with Bluestone Mortgages involves no credit scoring and includes both standard and fee-free options. This range provides brokers with solutions that support customers with adverse credit, or those who are self-employed or contractors.
Similarly, only one-third (36%) were aware of Shared Ownership options, which provide an alternative route to owning a home by allowing buyers to purchase a portion of a property and pay rent on the rest.
The role of mortgage brokers
Mortgage brokers play a crucial role in helping buyers navigate these complex financial challenges. Despite the value, only three in ten (30%) first-time buyers currently use a broker to help secure a mortgage. Another third are considering engaging with one in the future. Brokers have a significant opportunity to raise awareness about innovative solutions, such as Deposit Unlock or Lower-Deposit mortgage options, which could help alleviate some of the financial pressure on buyers.
The report emphasises that brokers can add value by focusing on educating first-time buyers about the different paths to homeownership. By highlighting products that accommodate smaller deposits, brokers can assist buyers in securing homes even amidst tough economic conditions. Moreover, with financial pressures affecting both first-time buyers and those looking to climb the property ladder, brokers are in a unique position to guide clients through challenging times.
While homeownership remains a challenging goal, there are potential solutions to be found. Increasing awareness about financial assistance programs, improving access to innovative mortgage products, and providing more guidance through brokers can help alleviate the pressure on first-time buyers.
However, the report also stresses the importance of addressing the broader systemic issues affecting housing affordability in the UK, particularly the shortage of affordable homes in high-demand areas. Without impactful change at both economic and industry levels, the barriers identified are likely to persist or worsen in the coming years.
In summary, affordability, insufficient income, and rising house prices remain the key obstacles, exacerbated by a lack of awareness of potential support schemes. Mortgage brokers are positioned to play an essential role in helping buyers overcome these hurdles by offering guidance and innovative solutions tailored to the current financial climate. As the cost-of-living crisis continues to impact the market, both buyers and industry professionals will need to adapt to navigate the challenging road ahead.
To learn more about Bluestone’s recent research, or to get in touch with them about Deposit Unlock, get in touch here.
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