Around 3.5 million households that might historically have been expected to become first-time buyers have failed to do so since the financial crisis, according to the Intermediary Mortgage Lenders Association.
The lender trade body said the scale of the shortfall demonstrated the need for targeted intervention to help borrowers struggling to overcome the deposit barrier.
Both IMLA and the Association of Mortgage Intermediaries have welcomed the government’s new Your First Home scheme, while warning that its success will depend heavily on how it is designed.
The scheme will allow eligible first-time buyers in England to purchase qualifying new-build homes with deposits expected to start at 2.5%, supported by a government-backed equity loan worth 20% of the property price. Further details, including household income and local property price caps, are due at the Budget on 28 October.
DEPOSIT BARRIER
IMLA has previously called for a successor to Help to Buy and argued that changes within the mortgage market alone cannot fully address the barriers facing aspiring homeowners.
Kate Davies (main picture, inset), Executive Director of IMLA, says: “We very much welcome the government’s decision to introduce Your First Home. IMLA has been calling for targeted support for aspiring first-time buyers for some time.
“Our research estimates that around 3.5 million households who might historically have been expected to become first-time buyers have failed to do so since the financial crisis, so the scale of the challenge is considerable.”
AMI also welcomed the focus on deposits, particularly for prospective buyers without access to financial support from their families.
Stephanie Charman, Chief Executive of AMI, says: “The deposit remains a significant barrier for many aspiring homeowners, particularly those without access to family support, and it is positive to see that the scheme will include income and property price caps to target help where it is most needed.”
LENDER CHALLENGE
Charman says the reduction in the minimum deposit from 5% under the previous Help to Buy scheme to 2.5% would have practical implications for mortgage lenders and brokers.
She says: “A 2.5% deposit represents a change from the 5% minimum under the previous Help to Buy scheme and lenders will need to consider product design, systems and how these applications work in practice.
“Mortgage advisers will have an important role in helping consumers understand whether the scheme is right for them and, crucially, whether the borrowing remains affordable over the longer term.”
AMI also wants more detail on how local property price caps will interact with existing first-time buyer Stamp Duty thresholds and whether enough suitable new-build homes will be available where demand exists.
NEW-BUILD RESTRICTION
IMLA says there are advantages to using an equity loan structure already familiar to lenders, brokers and developers following a decade of Help to Buy.
But Davies warns that limiting the scheme to new-build homes could restrict choice and concentrate its benefits among developers.
She says: “Restricting support to new-build homes can help stimulate additional supply, but it also narrows the choice available to first-time buyers and risks concentrating the benefits among developers.
“The design of the scheme therefore needs to ensure that support delivers genuine value for buyers as well as encouraging the building of much-needed new homes.”
Charman adds: “Your First Home should be a stepping stone into sustainable homeownership, not a sticking plaster for the wider challenges facing first-time buyers.
“Helping people overcome the deposit hurdle is positive, but affordability remains a challenge and we need to ensure there are enough suitable homes for them to buy.”
Davies said the announcement represented an “encouraging start”, with the potential to support aspiring homeowners and give developers greater confidence to build if the final scheme successfully tackles the deposit hurdle.
