First-Time buyers rejoice: competition means more affordable mortgages
Patrick Bamford, head of international business development at Qualis Credit Risk, talks about what he predicts the year will bring for lenders and borrowers.
For many hopeful first-time buyers, it's been a frustrating end to the year.
Since then, I have heard plenty of anecdotes from clients who found themselves in a position where they could not access the financing they needed, or they simply could not afford what was subsequently offered to them because lenders pulled products, upped rates and affordability measures moved beyond what was achievable for those would-be borrowers.
It was, and is, a terrible situation and what makes it even worse for those concerned is that they did nothing wrong and their ability to buy a first home was taken out of their hands by some monumentally stupid political decisions. What can you do?
Now it seems that certain fixed-rate products might take months to return, and where higher LTV mortgages were at an absolute premium just a few weeks ago, lenders are now starting to become more flexible.
Let’s not beat around the bush; the mortgage market is still very much alive and kicking – and it’s not going anywhere soon. But we are in a better position than we were this time last year, and as a result we can expect a more positive outlook for the future.
Lenders have some leeway in terms of pricing, and we might expect the start of a new year to bring with it some rate resets.
Mortgage rates are lower than the rates that lenders are offering to borrowers. However, if you give the market a few weeks, I expect to see some double-quick moves from lenders as they try to secure market share by offering even lower rates.
That should be good news for first-timers if it sees a return of more competitive pricing and much-needed higher LTV product choice. It will also make affordability a little less challenging, although I’m also of the opinion that lenders could be a little bit more flexible in this area.
Many people are already spending more on rent than they would on a mortgage payment, but most lenders don't take this into account when deciding whether or not to give a person a mortgage. My view is that we should consider people's housing costs over time, not just how much they make each month. If you have paid more in rent than you would pay in mortgage payments over time, then it is unlikely that you will suddenly stop paying your housing costs.
The other side of the coin here is house prices. After a period of double-digit increases each year, most economists predict that home values will fall next year. This would help first-time buyers get into the market and ease the concerns of those worried about such a decline. Remember that any drop would only take prices back to where they were about 12 to 18 months ago, so those concerns shouldn't be too severe.
We need a period of stability in prices, and hopefully if inflation falls and interest rates fall further, then it will be easier for people to get on the property ladder.
If you've been looking to buy your first home in recent months, you may have been frustrated that it's taken longer than expected to find the right place.
However, first-time buyers may find the market a little easier to navigate in 2023. If they have been waiting a long time to get on the ladder, they might want to hold out for a bit longer. This way, they could find themselves in a better position when prices have stopped rising and others are giving up hope. The housing market needs first-timers coming through the doors if it is going to regain credibility.