The challenges facing first-time buyers

Simon: Hello everyone. Welcome to MI TV brought to you by Mortgage Introducer. I'm your host, Simon Meadows, and I'm delighted to say that today I'm joined by Jen Lloyd, who is head of mortgage products at Skipton Building Society for Intermediaries. Hi, Jen. Thanks for joining me. 

Jen: Hi, Simon. Thank you for having me. It's great to be here. 

Simon: Oh, it's good to hear. Well, let's start by finding out a bit about Skipton. 

Jen: Sure. And so Skipton Building Society was founded way back in 1853. To help people to own their own homes. And 170 years later, we're still here doing just that. So whether that's innovative products to our common sense criteria, we are here to support brokers in getting their clients into homes. And 90% of our new lending at least is acquired through brokers. So that's just a testament to our continued commitment to supporting the intermediary market. So it's great to be here with you today to talk about that in more detail. 

Simon: And typically, what kind of borrowers are brokers bringing to you? Is there a particular type of clientele. 

Jen: In terms of clientele? I mean, it's absolutely quite broad. So we are here to support all sorts of different borrowers, whether that's from your first time buyers, right through to remortgage customers or even buy to let landlords. So we have an offering that caters to a really broad range of different borrower types. 

Simon: But how do you view the market currently in its challenges? 

Jen: I think the mortgage market has proven just how resilient it is, despite numerous challenges. You know, we've had the global pandemic to the now notorious fiscal events, courtesy of Truss and Kwarteng back in September last year. And I'm really encouraged by the fact that although reduced versus the highs that we saw post lockdown, demand for mortgages remains healthy and we've certainly seen it increase steadily over quarter one of this year, particularly in terms of the residential market. And I certainly expect to see a return to pre-pandemic levels of activity throughout the year, which I think is really encouraging in terms of the challenges that you asked me about. I think a key challenge for me is affordability is a huge topic that is kind of being talked about, I know, across the industry and it's something that whilst you know, we've seen mortgage rates reduced from the peaks that we saw in quarter four, they remain elevated compared to what we had got used to collectively as an industry. You know we saw sub 1% rates at one time. That the fact of elevated mortgage rates combined with the ongoing cost of living crisis does put pressure on affordability. And as an industry, it's something that we have to be really mindful of. I think the other key challenge that faces us as an industry in terms of the mortgage market is around the UK's transition to net zero. So how can we as a mortgage industry ensure that we're doing all that we can to help people to green their homes and to reduce their carbon footprints in the process? We've got a really bold ambition to be net zero by 2050. That's written into law. But I think as a mortgage industry there is kind of a big ask on us in terms of what can we do to support our homeowners and buy to let landlords in beginning that transition and beginning it kind of with the support and tools that are needed? 

Simon: What would you say are the key barriers facing those who want to take a first step onto the property ladder in 2023? 

Jen: I think it's fair to say that first time buyers face multiple barriers. Thinking about this year. We are thinking around an elevated house prices. So whilst there's widespread speculation that we're going to see a fall in house prices, that still is from a very dizzy height. And even if we do see the potentially 8 to 10% reduction over the next couple of years, which I've seen in some forecasts, that still means that. You know, your average house price is going to be significantly high. And so for your average first time buyer. Just the very fact of trying to get on the ladder in terms of the house price is going to be a challenge when you combine that with the cost of living crisis. I mean, I certainly feel it every time I go to the supermarket, things are incredibly expensive and inflation continues to be elevated compared to where the Bank of England would like it to be. And we are whilst we're seeing wages grow in real terms, when you account for inflation, they're just not keeping pace. And so for your average, just. For your average first time buyer, trying to save a deposit is really difficult. And when you combine that with the fact that people are. You know, first time buyers oftentimes will be in a rental property. And we know from research that we've done that. 8 in 10 tenants feel trapped in the rental cycle. So they are keeping up with funding the general cost of living, you know, whether that's food, shopping, energy bills and then paying their rent so they're not able to put aside money to save for a deposit. We know that the average deposit for a first time buyer last year was £60,000. And so that's kind of an indicator of just how big that mountain is to climb for that person that's trying to take a step onto the ladder. And actually that means that it's no surprise that whilst a mortgage could be affordable, you know, for maybe 70% of first time buyers that are in the private rental sector, less than 10% of those people are likely to have saved enough for even a 5% deposit. And so that's affordability of saving deposit is a huge barrier. And then finally, I think a really key barrier for a first time buyer is just understanding the journey. Where do they start? You know, I think us in the industry have come to take for granted things around, you know, stamp duty loan to value all those kind of technical aspects of a mortgage. And if you're inexperienced and taking your first step, it's hard to know where to turn. And that's really where brokers can come in and play a really key role. 

Simon: Well, yeah. So I was going to ask you, how much do you think first time buyers fully understand the home buying process and mortgages, and what more can brokers do to bring them on board to get them up to speed? 

Yeah, you're right. And I think that, as I've said, we know that the home buying process is challenging for everyone, even myself. You know, I have a mortgage I'd be looking at remortgages. I think anybody that looks. To make a change to a mortgage they don't relish. The thought of that is not an easy task by any means. But for somebody who's never done it before, the prospect of actually getting onto the ladder can seem really daunting. We did some research last year actually to deepen our understanding of just how familiar potential first time buyers are with the process. And what we found was that the majority feel overwhelmed sometimes even embarrassed to ask for help. They don't understand the often confusing jargon used and don't know where to turn to help and think the support that brokers can provide to would be buyers is invaluable. They're the experts and they can provide that advice and reassurance and help people to take the first step onto the ladder. I think what we'll say to first time buyers when we speak to them, whether that's by our events that we run or social media, it's very much it's never too early to speak with a broker. Don't feel like you have to wait until you've saved up what you think you need in terms of a 5% deposit and then have a conversation, speak to a mortgage adviser as soon as you know that you want to take that step. And they can help in terms of thinking about what your options might be, there could be schemes you're eligible for that you wouldn't have thought about. So our advice is always do speak with a broker as soon as in the process as you can to start getting that really valuable advice and guidance. 

Simon: And what more particularly can lenders do to assist borrowers in understanding the process? What is Skipton doing? 

Jen: I think in terms of what more we as lenders could be doing and demystifying the process is a really important one. So kind of providing education and support and advocating for getting advice, that's definitely something that we at Skipton for intermediaries are doing. Innovation, I think is really important. So innovating in terms of the products that we offer and the policy that we have in place and also the service that we provide to brokers for their first time buyer clients is really, really important. It's thinking about, you know, are we making sure as lenders that we are supporting the government schemes that might be might be in place. So whether that's shared ownership and first home scheme, also looking at things like joint borrower, sole proprietor. So that's a kind of element of policy that we've had in place for a while now. It just means that it gives potential first time buyers that extra support that they might need to get on to the ladder. And in terms of product innovation, we're looking at, you know, is it right that a borrower needs to have saved up a really big deposit before they get onto the ladder? Is there something we can be doing, you know, in a way that supports without the need for that traditional 10% deposit? In terms of tech investment, it's thinking about for those first time buyers when they are at the point where they've got the house that they want to buy, they're looking to secure their mortgage. Are we making sure that we're using the latest technology to support brokers in terms of that being auto income verification? ID just making sure that we can make the process as slick as possible because as said earlier, the mortgage process is not particularly slick, I think in general terms, and it does create a certain level of dread when, you know, you have the initial excitement as a buyer of, you know, getting on the ladder and finding the property that meets your needs. And as you go through the process, what with whether it's land registry searches or providing multiple copies of bank statements or ID, it can really take the joy out of it. And I think at Skipton Building Society, we really want to see where can we keep those moments that matter meaningful and something that's positive. I think what's unique about Skipton is that we are obviously part of the Skipton group, so we're in a very privileged position in that we have oversight and input from our group companies, Connells and Countrywide. So they are part of the end to end mortgage value chain. So we are really keen at Skipton for intermediaries to look to build on that. So work really closely across the group and innovate and lead from the front when it comes to innovation in the end to end process. So watch this space for more on that in the coming months and years. 

Simon: So that's encouraging. But how do Skipton view the market going forward, particularly over the next year? 

Jen: I think, Simon, what the last couple of years has taught me is that market predictions only get you so far. And that's something that at one time might have felt unlikely or indeed impossible really can happen. So look at the national lockdown in 2020. If you'd asked me about that, you know, could that ever happen? Would you be told that you can leave your house once a day for fresh air? I would have said, that's ridiculous. But look where we are now. And I think that. Um. Trying to make predictions is, uh, you know, it has its value and we obviously have to have forecasts, but equally, I'm very alive to the fact that anything can happen. But that said, I feel optimistic about the market outlook for the rest of this year and beyond. And but more importantly, I do feel. Really optimistic about the potential that we have at the Skipton Group to continue to help more people to have somewhere to call home. 

Simon: That's a good positive note to end on. Thanks so much for joining us, Jen. It's been great talking to you today. 

Jen: Thank you, Simon. 

Simon: That's it from this edition of MI TV brought to you by Mortgage Introducer. Please join us again for more industry chat. But for now, thanks for watching and goodbye.