The Left Behind Generation Of “Second Steppers”

Gross mortgage lending in 2018 has been predicted to rise for the eighth year in a row to reach its highest level since 2007, according to the fifth annual market review and forecast from the Intermediary Mortgage Lenders Association’s (IMLA), published today. The New Normal: Prospects for 2018 report predicts that gross mortgage lending will reach £265 billion and reports that the number of first time buyers has increased to reach 366.000 in 2017, often supported by the Bank of Mum and Dad and government schemes such as Help to Buy.

Second Time Buyers Miss Out

However, the report highlighted that things weren’t so rosy in the garden for second and subsequent buyers, often couples and young families trying to step up the property ladder and move from first-time buyers flats to get more space and a garden. Despite 377,200 “steppers” borrowing for a mortgage in 2017, this overall number is down down 42% since 2007, as many struggle to meet stricter mortgage affordability criteria on larger homes, despite any price appreciation on their first home.

Kate Davies, executive director of IMLA, reported in today says: “Despite the recovery of the housing market and the availability of mortgage finance since the last recession, stricter affordability rules are limiting activity by those who would otherwise be highly leveraged.”

She goes on to say: “…a chronic housing supply shortage is contributing to an increasingly illiquid market. Home movers, or “steppers”, in particular face a number of hurdles including high house prices relative to earnings, stricter mortgage affordability criteria and a lack of suitable homes – holding back housing turnover and transaction volumes.”

Affordability Will Drive Housing Market

As we reported last week, it was good to see that the Chancellor’s spring statement signalled an investment in new homes and affordable housing. This is welcome news on the supply front, but in order to have a truly effective and fluid housing market, I believe its crucial to be able to help people understand and demonstrate their true “affordability”.

So many of the stuck “second steppers” may be failing lenders’ affordability criteria even though they are financially buoyant. It may be because they are self employed, have a thin credit file, have worked overseas or have had periods in rented accommodation and therefore can’t supply all the information required. Castlight’s Affordability Passport takes a different approach, by providing a way for borrowers to give lenders a 3D picture of their finances. To simply tell them everything. By giving lenders access to their transactional data in real time, using open banking technology, lenders can review customers’ income and spending across 155 categories and with an unprecedented level of insight, make informed decisions on their true affordability.

We believe the industry’s stricter affordability criteria is a good thing but there are thousands of people out there, for whom the standard affordability checks don’t paint a true picture of their affordability. Our Affordability Passport, now used by an increasing number of UK broker networks, allows all borrowers to open up their bank accounts and let their lenders take a long, hard look.

For some, maybe, the Affordability Passport journey may be all they need to take that second step, secure the house with a garden and room for that swing.