The number of first-time buyers was on the rise last year, with purchases up 19% from 2023, according to Halifax. But with borrowing costs still high and affordability a challenge for many, the government is looking at ways to make that first step onto the property ladder more accessible.
Proposals include easing affordability tests – like factoring in rental payments – and introducing a mortgage guarantee scheme with just a 5% deposit. While the aim is to help more first-time buyers, there’s a fine line between making mortgages easier to get and pushing borrowers into risky territory, especially with the rate of inflation above The Bank of England's target of 2%.
So, with this in mind, how can brokers best navigate these potential changes to ensure they’re providing the right advice for their clients?
The challenge for lenders
For a long time, strict lending rules have made it hard for many people to get on or move up the property ladder, even if they can comfortably afford the monthly payments. The push for more flexible lending aims to change that.
One of the biggest proposed changes is the review of the 4.5 times loan-to-income (LTI) cap. Currently, lenders can only allocate 15% of their mortgage book to loans above 4.5 times a borrower’s income, making it tough for first-time buyers to borrow what they need. Relaxing this cap would give lenders more room to offer larger loans, helping them reach a greater pool of buyers.
This extra flexibility could spark more competitive products, with lenders tweaking their offerings to attract first-time buyers and high earners, encouraging more uptake. By considering factors such as rental payment history, lenders could also get a more accurate view of affordability, especially since so many people are paying more on rent than they would on a mortgage.
But with more flexibility comes more risk. Easing the LTI cap could mean some borrowers stretch their finances too far, especially with low growth in the economy. There is a real risk of creating mortgage prisoners – people who qualify now but can’t remortgage later if their circumstances change. To avoid this, lenders need to rethink how they measure affordability, taking a closer look at overall financial health, including spending habits and savings.
Brokers’ role in responsible lending
While easing the LTI cap will let more people access mortgages, it’s not just about getting more approvals – it’s about making sure it’s the right people. As affordability rules are relaxed, brokers need to help borrowers understand not just their eligibility but what they can realistically afford in the long term.
First-time buyers especially tend to focus only on the monthly payment without considering the full picture, like maintenance, insurance, and other ongoing costs. The last thing you want is someone getting their dream home but struggling to enjoy it because they’ve stretched themselves too thin. This means having honest conversations about budgeting and helping clients see beyond just getting approved.
Wider market awareness is also important. With different lenders likely to interpret the new rules in different ways, keeping up-to-date on changing criteria is key. However, it’s not just about knowing the rates – it’s about knowing who’s willing to take on what risk and the most complex cases. Having strong relationships with BDMs is a real advantage in that respect.
It’s also important for brokers to make first-time buyers aware of all the options available to them. Self- and custom-build homes are a huge, often overlooked part of market, especially for those looking to get onto the property ladder.
And it’s not just about Grand Designs-style mansions – custom builds can be affordable, practical options, particularly for first-time buyers looking for flats or homes in city centres. They’re also generally more energy-efficient, with energy consumption up to 42% lower and CO2 emissions up to 43% lower than typical new builds, according to the NaCSBA Custom and Self Build Report 2023/24 report.
As the mortgage market digests these proposed changes, it’s important that all parties involved –from regulators, lenders, brokers and borrowers – work together.
Ultimately, these proposals are a step in the right direction, and any boost to first-time buyer ownership is welcome. However, focusing on responsible lending practises and bolstering financial education will be key to ensuring long-term stability in the market. By helping people make more informed decisions, we can create a more accessible mortgage market that allows more people to achieve homeownership, while also protecting financial wellbeing.
