It is a volatile economic environment – so what are the best solutions?
First-time buyers are facing a nasty and violent storm: economic uncertainty, rising interest rates, the end of Help to Buy and very low availability of housing stock.
Given that renters are often forced to spend up to half their income on rent, it is increasingly difficult for anyone on an average salary to save for a deposit. For those who cannot rely on the Bank of Mum and Dad, therefore, what options are there?
What’s the situation?
“Even before the cost-of-living crisis began this year, our lives, and finances, had become much more complex in recent years,” according to Craig McKinlay (pictured), new business director at Kensington Mortgages.
He explained that millions of self-employed workers relied on furlough payments, whereas others took career breaks or saw significant changes to their income. As a result, McKinlay said some people with otherwise good credit scores have, through no fault of their own, missed mortgage payments and experienced credit blips. “On top of the pandemic, 2022 has seen a volatile economic environment with inflation and the cost-of-living both steadily on the rise,” he added.
Yet, despite this, he noted that the demand for new mortgages has remained high, most likely due to customers trying to lock in new rates before further anticipated base rate increases add to their financial equation.
The cost-of-living crisis means that many young people are having to rent at high prices, and McKinlay said many are often forced to spend a significant amount of their income on rent. This has made it increasingly difficult for anyone on an average salary to save for a deposit. In May, house prices were 11.2% higher than a year earlier, down from 12.1% in April, according to Nationwide’s index.
“We are all aware that rising inflation diminishes an individual’s borrowing power,” said McKinlay.
Read more: UK inflation rises again
What does this all mean for rates?
Put together, McKinlay said this series of events mean that traditional products offered on the high street or through an aggregator may no longer be suitable for the current situation we are all facing.
“Here is where advisers now play a crucial role in helping to cut through the confusion and provide clear, simple, and personal advice,” he added.
Read more: What can be done to take on the rising cost-of-living?
McKinlay believes that lenders must be flexible and look beyond the obvious, and long-term. One such option for first-time buyers, and a product which works outside the conventional lending box, he said, is Kensington Mortgage’s Flexi fixed-for-term product.
“It offers up to 95% loan-to-value (LTV) and with a range of 11- to 40-year fixed terms and flexible ERCs, this product has been designed to help people who need to boost their borrowing and enjoy peace of mind about their repayments,” he said.
Not only do long-term fixed products address peace of mind, McKinlay explained that they can also give provide greater borrowing power than is typically seen in the wider market.
The affordability assessments that Kensington Mortgages borrowers undergo when taking out a mortgage, McKinlay explained, means borrowers are well placed to withstand the impact of any potential dips in the roads, such as an income squeeze.
“Ultimately, we are now entering a very different environment to the one we have enjoyed over the past decade, and no-one knows how long this uncertainty will last or how difficult things may get. Just as the world is changing, so too must lenders and intermediaries change with it,” he said.
According to McKinlay, clients need more than just a standard two- or five-year fix, and they need more than the usual high street solutions.
He believes consumers need flexible, customised options, and they need a trusted adviser who can offer guidance, support and reassurance through the choppy waters that lie ahead.
“For intermediaries, now is the perfect time to add value, build a loyal client base and truly make a difference,” McKinlay concluded.
