The latest generation of first time buyers

Jake PalenicekHead of Custom Research, UK
September 17, 2014, 3:58 PM GMT+0

There will always be first time buyers wanting to find a way on to the housing ladder. Jake Palenicek, YouGov’s Director of Financial Services Research, argues that the post-recession crop of first time buyers has a distinct shape and there is a hole in the market for mortgage companies to fill.

Buying property has always been an alluring but difficult ambition for many consumers. Each new economic boom sees house values increase making those who own houses better off and further enforces the notion to those looking to get on the property ladder that bricks and mortar are a sound investment. However, each price rise also makes it harder for those who want to buy a house to do so.

The current property boom has made conditions especially tough for people wanting to purchase their first property. Wages have not kept pace with the cost of living meaning people have less disposable cash to put towards a deposit. Concurrent to this is the fact that mortgage providers have raised the threshold for deposits.

Yet people are still willing to do whatever it takes to get a mortgage as they believe owning their own home represents a sensible and sound investment. YouGov’s recent “First Time Buyers 2014” report suggests that, despite the increasing financial obstacles and higher levels of investment needed they still think that owning a property makes financial sense. Almost half (46%) of the people we spoke to still think that buying is cheaper than renting and also provides greater financial security, underlining that property is seen as a secure long term investment.

It is clear that property ownership remains something to which many aspire. However, the post-recession landscape has given the present generation of first time buyers a distinct shape.

Increasing costs have changed the approach many take to buying a property. First time buyers are actively seeking out ways to alleviate the financial burden of buying a property in today’s market. Almost three quarters (73%) choose to buy with others and, perhaps mindful of the potential pitfalls that come with buying a property jointly, most of these were choosing ‘joint beneficial tenancy’ (61%) over ‘tenancy in common’ arrangements (17%).

The post-recession house price boom has also meant the amount of deposit first time buyers need has increased and they are sourcing this capital from a number of different areas. Although two in three (66%) say they’d saved the money for a deposit themselves, many (34%) first time buyers are still heavily reliant on an inheritance or “the bank of mum and dad” to raise the required funds. Government-backed schemes such as “Help to Buy” and shared equity also seem to be aiding some, with a fifth (20%) saying they have used or plan to use them to help purchase their first property.

The long-term fall-out from the financial crisis has also shaped the type of repayment plans people want. Just 14% of the first time buyers we surveyed intended to take out “interest only” mortgages while over three quarters (78%) planned to get “repayment” mortgages. With six in ten (63%) first time buyers thinking interest rates will be at least 1.5% in three years’ time and the vast majority (85%) saying this will affect their mortgage payments, many are keen to insulate themselves from the fall-out.

There is evidence that first time buyers are trying to gain as much control over (and shave as much expense from) the process as possible. Most (63%) are now cutting out the middlemen and going directly to their mortgage providers, with just one in three (33%) of those who had made a mortgage application going through an intermediary, such as a mortgage broker.

Whichever route they choose, first time buyers want to be as informed as possible about the choices available. The digital channel has been crucial in giving first time buyers more information and better control with the most important sources of information being aggregator websites such as Moneysupermarket and GoCompare. Our research also points to the influential role of providers’ own websites and also consumer finance sites such as This Is Money or in the research and application processes.

Given the challenges they face, perhaps it is not surprising that the current generation of first time buyers are unhappy. However, despite the challenges and problems outlined, the area they are most disappointed with is the service they received when taking out a mortgage, with only around three in ten believing their mortgage provider was ‘responsive’ and ‘willing to listen to their needs’ (31% and 28%) while just one in four (27%) believe they had been ‘treated fairly’.

That so many current first time buyers feel their needs are not being met presents an opportunity to mortgage providers. A provider that can improve the information it gives to help navigate the choices available, as well as advice on key relevant topics such as the potential impact of interest rate rises on repayments can stand out from the crowd and build a reputation as “the mortgage provider for first time buyers”. First time buyers will only be first time buyers once and gaining their trust and loyalty while they are on the first rung of the property ladder represents a long-term investment for mortgage providers that will pay rich dividends in the future.

Jake Palenicek is YouGov’s Director of Financial Services Research

Click here or more information on YouGov's First Time Buyers 2014 Report

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