New data has revealed a 13% drop in young people securing mortgages since 2021, said Quilter.
The wealth management business said that its own analysis of new data shows that Labour’s ‘Freedom to Buy’ pledge is unlikely to achieve its aim of supporting aspiring first-time buyers.
Freedom of Information (FOI) data was gathered from the Financial Conduct Authority (FCA) and analysed by Quilter to measure the number of younger buyers over the last 10 years. It also gauged the impact of the currently temporary mortgage guarantee scheme (which will be rebadged as Freedom to Buy and made permanent by the Labour Government).
How has the mortgage guarantee scheme helped?
Since its launch in April 2021, only 44,368 mortgages have been completed with the support of the current mortgage guarantee scheme – 86% (or just 38,323) of which were for first-time buyers.
Comparatively, Quilter’s analysis of the new FOI data reveals that in 2021-23, more than 1.13 million mortgages were secured by 18-30-year-olds.
The number of these younger people (aged 18-30) securing a mortgage each year has risen relatively steadily over the last decade, but spiked at 401,665 in 2021 (due to the stamp duty holiday), and has fallen 13% in the last two years.
What does this mean for the future?
Quilter said that prospective first-time buyers are having a tougher time securing a mortgage because of higher mortgage rates and house prices.
It stated that it’s “imperative that any schemes introduced by the new Labour Government are effective”.
The Freedom to Buy scheme (a permanent version of the current mortgage guarantee scheme) is unlikely to provide adequate support, said Quilter, “as we can already see that the current scheme has little impact on the market as a whole”.
Charlotte Nixon, mortgage expert at Quilter, said: “While it is certainly a good thing that more young people have been able [to] secure a mortgage over the past decade, it appears the number may now be falling.
“This will in part be down to the lack of support on offer for first-time buyers, which has only been exacerbated by high mortgage rates, the pace of house price growth and the difficulty faced in saving a deposit.
“However, a high-loan-to-value [LTV] mortgage such as those that would be encouraged by Labour’s ‘Freedom to Buy’ scheme is simply not the answer. Such a scheme would not address the fundamental issue of high property prices relative to average incomes, which has been evidenced by the considerable lack of take-up thus far.
“Not only have very few people made use of the scheme currently on offer, but with house prices still at risk of fluctuating, those that do could be at risk of negative equity.”
Quilter added that the Government has announced new housing targets and planning reform, but may need to look to other options to support first time buyers in the meantime.
What else could the Government do to support younger buyers?
Below, Quilter has assessed the impact of three key schemes that the Labour Government could consider reinstating, adjusting, or taking inspiration from.
Here’s what it said:
1. Help to Buy ISA: Since its launch on 1 December 2015, the Help to Buy ISA has supported 592,105 property completions. Though those with these accounts can continue to use them for their first property purchase; they have until November 2029 to save into them and must have claimed the 25% Government bonus by November 2030, putting pressure on those currently saving to buy a home to do so in order to make the most of their savings.
2. Help to Buy equity loan scheme: In its 10 years of existence, the Help to Buy equity loan scheme supported a total of 387,195 property purchases. However, this scheme closed to new applications on 31 October 2022, with the scheme officially coming to an end on 31 March 2023, so prospective first-time buyers are no longer able to make use of it. What’s more, the scheme’s impact was not uniformly positive. Its design allowed the Government to gain a share of the property’s appreciation, meaning as house prices increased, so did the Government’s profit from these loans. This aspect became particularly burdensome for homeowners when they reached the end of their five-year interest-free loan period. With the interest rate initially set at 1.75% and then increasing annually based on inflation, many homeowners faced escalating costs, adding financial strain to what was initially intended as an assistance programme.
3. Lifetime ISA: The Lifetime ISA was introduced in April 2017 and offers a 25% Government bonus on savings of up to £4,000 per tax year. Since inception, the Lifetime ISA has been used for 171,050 house purchases. The Lifetime ISA comes with punitive early withdrawal charges, which could put off those looking to save.
