Once upon a time, the biggest barrier to becoming a homeowner was building up a suitable deposit. Arguably this has become even tougher in the last few years, what with house prices rising rapidly and wages not keeping up, but it seems there's a new kid providing a major block – accessing a mortgage.
According to the Building Societies Association's (BSA's) latest Property Tracker survey, access to mortgage finance is now the single biggest barrier to owning a home among would-be first-time buyers (FTBs), with it rising above raising a deposit for the first time since 2012.
In fact, 57% of these buyers say that getting a mortgage is the most difficult hurdle to overcome – a significant increase from the 41% who thought the same in June, and the 33% who thought so in September last year.
Substantial changes to mortgage regulations in the last few months – specifically those related to affordability criteria – could well be to blame. Recommendations following the Mortgage Market Review were implemented in April and made stricter affordability checks compulsory, so borrowers would not only have to prove they could afford their mortgage repayments now, but that they could continue to do so should rates rise in the years to come.
Then came recommendations from the Financial Policy Committee (FPC) to cap the total number of mortgages available at 4.5 times a borrowers' income, which effectively restricts the availability of high loan-to-income mortgages. This may also have affected confidence, especially to those buying for the first time in London and the South East, where prices are particularly out of pace with wages.
It's unsurprising, then, that so many first-time buyers are concerned about getting a mortgage, because it looks like it's becoming increasingly difficult to do so.
Of course, raising a deposit will still be a significant barrier, and additional research from the National Housing Federation has suggested that homeownership is becoming increasingly reserved for the wealthy.
According to their calculations, today's FTB needs to find a typical deposit of £30,000 – ten times more than that needed in the early 80s, when the average deposit required was just £2,000-£3,000. The average home now costs seven times the average salary, while a typical first-time buyer will borrow 3.4 times their annual income (up from 1.7 in 1979).
Two-thirds of FTBs now turn to their families for financial assistance in raising the deposit – up from a third in 2005 – and many are pushed to the private rental market, where they typically spend 40% of their monthly income on rent. This makes it even harder to save, which in turn, could potentially make securing a mortgage even more difficult.
Arguably, these difficulties could go some way to account for the annual drop in housing market activity. According to figures from Connells Survey & Valuation, the number of valuations recorded in August was 4% lower than in August 2013, suggesting that the market may be returning to more sustainable territory.
However, as Connells' John Bagshaw points out, "that's partly because August 2013 was particularly strong – an exceptional month for comparison, being the first time where it was clear the property market was moving into sustained positive territory. Since last summer progress for the housing market is on a new, steadier, and more sustainable track".
This is demonstrated by the increase in monthly transaction numbers – the total number of valuations in August was 13% higher than July – and valuations for first-time buyers and home movers have followed the trend, with activity levels being up month-on-month (by 8% and 18% respectively) but falling by 4% on an annual basis.
Nonetheless, signs are positive for September, added Bagshaw, and it's thought that remortgaging activity could recover too, despite it showing the sharpest annual decline of 5%. "The long-term trend is clear – a higher base rate is on the way. The cheapest mortgage deals are only set to become rarer over coming years, so in the medium term remortgaging activity will reflect that," he said.
If you're struggling with securing that all-important mortgage, there are things you can do to overcome the barrier. Saving for the deposit should be your first port of call – it may seem like an impossible task, but getting into the habit of saving could soon see your pot mount up, particularly with compound interest added into the equation.
Once that's sorted, it all comes down to finding the right mortgage. Government schemes such as Help to Buy mean it's now possible to secure a mortgage with a deposit of just 5% – check out our pick of Help to Buy mortgages as a starting point – but if you can put down even more, you'll secure a lower rate.
You'll also need to do plenty of preparation to increase your chances of securing a mortgage. Go through your budget carefully, noting any areas you could cut back on to make sure you can prove affordability to your lender, and hopefully you'll be one step closer to securing that mortgage and putting your first foot on the housing ladder.
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