Can fintech innovation help generation ‘renters’ get onto the property ladder?
Experts are already warning that first time home buyers could risk paying a premium under the new 95pc mortgage scheme. More education is needed to help buyers make informed decisions on the biggest investment of their life.At the same time, Fintech innovation can help solve this.
We welcome the news about the government’s support for first-time buyers, as outlined by the recent UK budget. With house prices continuing to outpace people’s salaries, there’s so much help that’s needed to get many people – especially ‘generation rent’ onto the property ladder.
In a bid to offer greater flexibility to aspiring home buyers and democratise access to the housing market, the government has rolled out a new 95pc mortgage scheme. Under the plans, home buyers will be able to secure properties worth up to £600,000 with just a 5pc deposit.
Big deposit: A major barrier?
This is a good start, as saving up a big deposit is a major barrier to buying for many people, and taking out a 95% mortgage will offer more opportunities to get on the property ladder.However, the process of qualifying for a mortgage is far from the only barrier to homeownership. Mortgage affordability is the other big hurdle that keeps people renting for longer, especially if they’re buying solo.
Most renters on lower incomes aren’t able to borrow enough to afford the kind of home they want, in an area they want – and this problem will continue.Those who are furloughed have seen their wages drop by as much as 20% – making the dream to buy a house even more difficult to achieve.
As such, this policy will struggle to get renters onto the property ladder and could even inflate house prices further through increasing demand.
More affordable housing is the key as well as longer-term support from the government for the housing market. But something else is equally important – and that is financial literacy.
Giving people the knowledge to find ways to maximise savings is vital to help them put aside the money they need for a home deposit in the future.
For those who can get their first place with this scheme – they must also have enough financial knowledge to read the fine print and understand the potential drawbacks of taking on a big mortgage, such as higher interest rates on the loan and fewer choices on the range of mortgage deals on offer. They will also face more restrictions on which charges can be added to the loan.
Homeowners who have taken on a 95% mortgage could find it difficult to remortgage in the future and will be more exposed to rising interest rates. There is also a greater risk of negative equity if house prices take a dip in the future.
Fintech innovation, an intelligent help
More education is needed to help buyers make informed decisions on the biggest purchase of their life.Fintech innovation can help solve this, with companies entering the market with tools that offer competitive advice for those that simply don’t have the budget for financial advisers to help them plan their future.
With greater financial literacy we can help to break down barriers and level the playing field when it comes to property ownership.
There’s a great opportunity for digital innovators to work with the government to address this issue head-on and to make homeownership achievable today and for future generations to come.