Lender’s opinion
Rachel Geddes, director of strategic lender relations at the Mortgage Advice Bureau, talks to Jeremy Duncombe, managing director of Accord Mortgages.
Geddes: How do you see continued opportunities to switch lenders for first-time buyers?
Duncombe: Since Help to Buy was withdrawn, first-time buyers have found it more difficult to access the housing market than they used to. Whatever its shortcomings, the scheme has served a clear purpose: it has enabled large numbers of first-time buyers to afford homes and given homebuilders the confidence to deliver the right types of homes in the right places.
Its removal coincided with the perfect storm of affordability – rising living costs, cuts to the Truss mini‑budget and a sharp rise in mortgage rates. The result has been reduced lending capacity, higher deposit requirements and fewer routes to get on the ladder for home-owners.
Lenders have had to respond and innovate to address the twin challenges of affordability and raising deposits. Our 5K Deposit Mortgage is designed specifically to address the deposit limit of consumers who can support mortgage payments but struggle to accumulate a large upfront deposit, at a time when many were saving up to a 10%, 15% or 20% deposit.
By reducing that hurdle, the product does what it says on the tin – allowing buyers to bring their home ownership journey forward by a few years. This kind of targeted innovation is vital if we are to rebuild momentum in the down-market, and it’s encouraging to see other lenders exploring different ways to support first-time buyers.
Ultimately, first-time buyers are the backbone of the housing market. Allowing them to rise quickly supports market dynamics, boosts confidence and supports long-term housing delivery.
Geddes: What else needs to be done to maintain momentum among first-time buyers in this climate?
Duncombe: The biggest challenge – and opportunity – is to restore confidence among first-time buyers. A significant group of potential buyers have successfully excluded themselves from the market.
Many think they don’t have the money to buy, have been told that loans are hard to get, or believe that past debt or low income make them uninterested. Because of this, they continue to hire and, in many cases, take themselves off the market for years.
Aside from consumers, there is also a broader role for the industry to communicate more effectively about first-time buyer opportunities. This includes working with the media to highlight effective routes to the ladder, and engaging with touchpoints where prospective buyers are already present – such as letting agents – to ensure the right messages reach potential tenants who may not realize they are closer to buying than they think.
Geddes: Why do you believe it is important for people who want to buy a home to be able to do so, and what does home ownership represent in today’s market?
Duncombe: Although home ownership has an element of aspiration, it is ultimately more than that. It provides long-term security, greater flexibility and the ability to build wealth through equity. Importantly, it also plays an important role in supporting financial stability later in life. Our research has shown that home owners are better off in retirement than renters, highlighting a £2.6m lifetime income gap for people forced to rent rather than buy.
There will always be people who choose to rent, but for many, getting on the housing ladder early can bring huge long-term benefits by enabling them to build equity over time.
This is especially important as borrowers approach later life; paying off a loan in their 50s or 60s can mean entering retirement with no housing costs and an equal amount to support future needs.
Geddes: What changes are needed to improve access to home ownership, and where should that change come from – lenders, government, or industry partnerships?
Duncombe: Addressing the challenges facing the housing market requires a collaborative approach across the industry. It cannot be solved by any one stakeholder alone. Lenders can innovate and adapt, but they must work within a regulatory framework, which means that the regulator also has an important role to play, and it is encouraging to see the regulator engaging in consultation and showing a clear desire to support greater access to home ownership, while acknowledging some of the structural barriers that have existed.
Many of these measures were introduced for the right reasons following the credit deficit, when the market needed a fundamental change. However, over the past twenty years, the market has changed dramatically. Lenders are now better regulated, better capitalized and more risk-aware, yet many of the same barriers remain.
There is a case for allowing lenders greater discretion to make reliable lending decisions, while maintaining strict prudential standards.
