First-time buyers are having to put their moving plans on hold as a result of the impact the coronavirus pandemic has had on mortgage availability and income stability.
Nearly half of people planning to buy their first property say they have had to delay their plans by an average of nearly a year as a result of the pandemic.
One in five first-time buyers has had to pull out of a purchase as a result of lockdown, while 49% saying they are now worried about their financial security, according to mortgage lender Aldermore.
Overall, four out of 10 first-time buyers say the pandemic has made it harder for them to get on to the property ladder, with a similar proportion saying it has made it more stressful.
First-time buyers looking to get on to the property ladder are facing issues on three fronts:
- Financial instability. The pandemic and its associated lockdown has hit many people’s income and job stability.
- Cautious lenders. Mortgage lenders have become more cautious, leading many to pull their range for borrowers with small deposits. There are now no mainstream mortgages for people with only 5% to put down, with only a handful of specialist products remaining which require either a guarantor or that borrowers live in a specific area or work in a certain profession. There are also now only 45 mortgages for people with a 10% deposit.
- Competition from landlords. Finally, the end of lockdown has led to a steep increase in property transactions, with first-time buyers once again facing competition from investment landlords who are keen to take advantage of the stamp duty holiday.
Why is this happening?
Mortgage lenders have been pulling products across the board as they review their ranges in the light of coronavirus.
The total number of residential mortgages has more than halved since the beginning of March, dropping from 5,222 to 2,338 now, according to financial information group Moneyfacts.
But products aimed at first-time buyers have been particularly hard hit as lenders reassess the level of risk they are prepared to take.
Mortgages for those with only small deposits are generally considered to be higher risk than those for people with a large equity stake in their home, as there is more chance of the borrower ending up in negative equity if house prices fall.
As such, the number of deals for people borrowing 90% of their home’s value has dropped from 779 in early March to just 45 now.
At the same time, lenders have repriced high loan-to-value mortgages.
While the interest charged on the average two-year fixed rate mortgage has increased by 0.1% during the past six months, rates on loans for people borrowing 90% of their home’s value have jumped by nearly 1% to average 3.53%, while the cost of the few remaining 95% loan-to-value deals has risen by 1.48% to 4.74%.
What can you do?
Don’t panic if you are a first-time buyer hoping to get on to the property ladder. There are still steps you can take to increase your chance of getting a mortgage.
Increase your deposit
If you have decided to delay your purchase by a few months, take the opportunity to try to save more towards your deposit. Borrowing 85%, rather than 90%, of your property’s value will increase the number of mortgage deals available to you from just 45 to 350.
Improve your credit score
You can increase your chances of qualifying for a mortgage by ensuring your credit score is as high as possible. Make the time to review your credit report to ensure it is up to date and accurate, and, if possible, take simple steps to improve it, such as paying off your credit card in full each month and ensuring you settle all of your bills on time.
Cut back on your spending
Affordability plays a key role in whether or not lenders approve you for a mortgage. As such, the lower your outgoings are relative to your income, the more chance you will be accepted for a mortgage. Lenders look at between three and six months’ worth of bank statements when assessing mortgage applications, so the sooner you can start cutting back, the better.
Use a broker
With deals for first-time buyers currently scarce, using a broker could help you secure a mortgage. Not only will they be able to scour the market on your behalf to find a deal that suits your circumstances, but they will also be able to advise you on which lenders are more likely to approve your application.
Ask the Bank of Mum and Dad
With the Bank of England base rate at a new record low, savings aren’t earning much interest at the moment. But interest rates on an 85% loan to value two-year fixed rate mortgage are an average of 0.73% lower than for a 90% one. See if your parents would be prepared to lend you a lump sum to help you qualify for an 85% loan to value mortgage, in exchange for you paying them a higher rate of interest on the money than their bank would.
If you can’t afford to buy in your local area but still want to get on to the property ladder, consider purchasing a property in a cheaper area and renting it out. The Legal & General Mortgage Club has seen an 18% increase in searches for first-time buyers wanting to enter the buy-to-let market since the beginning of September.