First-time buyers, mortgages and the "debt test", published in CML Housing Finance Online, found evidence that although many recent first-time buyers have a better safety net than the general population of borrowers, they are still at risk in the event of any disruption to income.
* 75% of recent first-time buyers have some form of insurance to cover against illness or unemployment, compared to only 60% of all borrowers;
* 31% have both health and unemployment provision, compared to 26% of all mortgagors;
* 54% of households have access to employee benefits for all adults in the household, compared with 43% for the population as a whole.
However, the research also raised issues that could be cause for concern. Recent first-time buyers were less likely than other households to have comprehensive cover for all adults in the household. For example, 48% of recent first-time buyer households containing two or more adults only cover one person for health related problems. The comparable figure for all borrowers is 27%.
The "debt test", an online credit self-assessment tool, is being developed by the FSA's financial capability initiative. The test will act as an educational tool to promote better understanding by consumers' of their credit position and their likelihood of experiencing future payment difficulties. The CML research found that 73% of under 25s, and 66% of those aged 25-34 thought a debt test would be a useful way of assessing their risk.
Commenting on the findings, CML Senior Policy Adviser, Alex Solomon, said: "The world is an inherently risky place. No-one will ever remove all the risks associated with purchasing a home using a mortgage. However, problems faced by mortgage customers can be minimised by a combination of improved understanding of the risks associated with home-ownership and the availability of a co-ordinated and comprehensive safety net."
"Evidence from the CML's consumer research clearly indicates that both current and potential home-buyers feel that the concept of a "debt test" would be useful when they are assessing their ability to afford a new home and the associated repayments."
