Early engagement is becoming increasingly important in the mortgage journey, particularly for the next generation of borrowers. For In Focus, Rob Lankey, National Sales Director at Afin Bank, explores why advisers should be speaking to prospective buyers sooner than ever, and how these early conversations can help shape better outcomes.
If I were to give a single piece of advice to anyone wanting to buy their first home, it would be to start talking to a mortgage adviser as soon as possible. Even if you feel you’re not quite at the buying stage.
Because the current generation of new borrowers does not just need advice on finding the best interest rate, they need guidance on how to navigate the mortgage process. They need to understand the financial requirements and the product choices. They need to get a handle on what the journey could look like, so they can see whether buying a property is possible and not something that is out of reach.
That is where good brokers can help younger clients. Talking to a mortgage adviser now can help potential borrowers understand what’s possible, what kind of property their budget and their affordability could get them, as well as their loan options to help them choose a mortgage that works for them, as well as providing them with a foundation for the future.
There’s nothing worse for the first-time buyer than setting your sights on the perfect home only to have your dreams dashed when you finally engage a mortgage adviser and find you cannot get the home loan you need.
Government figures show that the average first-time buyer in England is now in their mid-30s, with many waiting until their late 30s and early 40s before starting on the housing ladder. Partly this is due to affordability driven by higher property prices and a tightening of mortgage rules after the financial crisis. But there are also other shifts that impact both the decision and the circumstances of potential buyers.
Older buyers might come with bigger existing debts or higher outgoings. They may also be in a different place with their careers and their relationships. All factors that can sometimes make it harder for a buyer to get a mortgage from mainstream lenders that tend to use very rigid automated models to assess affordability.
Advisers can explain to potential borrowers how their current financial and personal circumstances could impact their credit rating and affordability profile, giving the customer the opportunity to take steps to change their situation, such as paying off any smaller debts or addressing any factors on their credit record.
But the current generation of first-time buyers may also have a number of factors on their side, such as access to shared-ownership schemes. They may also have had a longer period of time to save up a bigger deposit, perhaps through one of the government-supported savings vehicles. They may also have family who are willing to help, perhaps with gifted a deposit for example.
The current generation also has a wide choice of lenders and mortgage products, so there is a good chance that there is a lending solution out there to suit their needs. But the choice can be bewildering and confusing – another reason to start talking to an informed and expert mortgage adviser.
The concept of a job for life has pretty much disappeared, so the career make-up of a first-time buyer could be very different from just ten years ago. Borrowers could be highly qualified professionals on a path to becoming higher earners but may currently have a limited financial history.
For professional borrowers like this, Afin Bank, for example, will consider loans of up to 6.5 times their income. We will even consider professionals from overseas working in the UK on a valid work visa, even if they do not have a detailed credit history, so long as they have been working in this country for at least six months.
The increase in flexible working and fluidity in the UK’s workforce means that more people are converting their employment experience into contracting roles, which can be higher-paying but may not meet the salary-based affordability criteria of many traditional lenders. At Afin, we will consider lending to contractors, even if they are at the start of a new contract, so long as they have a good amount of experience in that role.
This also extends to contractors who have gained their experience overseas and are now starting a contract role in the UK and are looking to buy their own property.
Although there was a fall in the number of self-employed workers in the wake of COVID, the number of people working for themselves is starting to return to those pre-pandemic levels. However, the make-up of what constitutes self-employment is changing, with a drop in traditional tradespeople and business owners, and a growth in admin workers and self-employed people in the care sector.
Working for yourself can now also include people with a so-called side hustle, perhaps an online business, and are therefore juggling self-employment alongside a salaried income. At Afin, we are also seeing more people with two jobs, meaning their income profile is more complex than many mainstream lenders want to consider.
As a new borrower, clients will benefit from expert advice from a broker to help them find a lender that will consider these non-standard income patterns.
Family support is also becoming more common among first-time buyers, and in many cases, gifted funds towards deposits are essential. However, it also introduces new advice considerations, and advisers must carefully explore the source of funds and donor intentions.
For our foreign national customers, funds from overseas or family gifts are even more commonplace, but they also require greater verification and transparency, so it is vital for the customer, and therefore the adviser, to start talking to specialist lenders early.
I often hear from advisers that they increasingly find themselves having to explain to clients why they have been turned down for a mortgage when, on paper, the fundamentals look good. This is a position that has worsened recently with interest rate volatility and many lenders withdrawing from the market and dropping products.
But mortgage declines are not necessarily the result of poor credit quality, but often because of a mismatch between a borrower’s circumstances and a lender’s appetite and willingness to accommodate them. For a client new to the mortgage market, this can be confusing and disappointing.
Advisers therefore play a vital role in helping the new generation of borrowers to navigate their way through the marketplace, hopefully towards a suitable mortgage. And it could be a win-win: the customer takes their first step on the property ladder, and the adviser starts to build a relationship with a potential long-term client.
