According to the Council of Mortgage Lenders,
first-time buyers are the most susceptible group of homeowners to debt, as
they are more likely to have higher loan-to-value ratios and commit a higher
proportion of their income to mortgage repayments. Despite their
susceptibility to debt, there is evidence which indicates that insurance
take-up and employee benefits provide recent first-time buyers with a safer
foundation than the general population of mortgage borrowers.
The Council of Mortgage Lenders (CML) has become increasingly concerned about
the ability of current and future home-buyers to pay back mortgages in the
event of changing circumstances. Over the past five years, the CML and its
partners within the Sustainable Home-ownership Initiative, have sought to
improve this issue. Contributing factors to the problem include increasing
personal debt levels and a less certain economic environment. This has
provoked concern about the sustainability of home-ownership and consumer
understanding of financial products, ensuring that the issue of mortgage risk
is at the top of the agenda for the UK Government, industry regulators and
public as a whole.
Over the last year, the Sustainable Home-ownership Initiative has debated the
most effective move forward to increase home-buyers’ awareness of potential
debt and protection from unforeseen events with insurance products,
specifically Mortgage Payment Protection Insurance (MPPI). The Financial
Service Authority is leading the way to help raise awareness of debt
prevention with the “Debt Test” initiative.
According to research carried out by the Council of Mortgage Lenders, two
thirds of recent first-time buyers say that an online debt test designed to
help them assess potential triggers of debt and highlight future borrowing
risk would be useful.
The mortgage market is also watched very closely by the consumer research
website, moneynet. In addition to tracking market behaviour, property values
and homeowner incomes, moneynet have endeavoured to become increasingly
proactive about educating their visitors, so they fully understand the
complexity of the relevant financial products. In addition to their mortgage
comparison service and mortgage protection options, moneynet published a
comprehensive mortgage guide earlier this year, as part of its series of
consumer product guides. Moneynet isn’t the only site to offer enhanced
information services; Which? also offers a detailed mortgage guide and
mortgage search tool powered by Moneyfacts. Both “Switch with Which?” and
moneynet take the consumer through the types of deal available, detailing the
different interest rate structures including fixed rates, capped rates,
discounted rates, stepped rates and standard variable rates.
The CML state that there is much evidence to show that first-time buyers
appreciate this information, including the “debt test”, more so than older
households. This is perhaps due to the fact that many first-time buyers have
to borrow much more for their initial property, due to high prices, and that
they have generated more personal debt than their parents’ generation. Whilst
personal debt remains a major concern for the finance industry, the government
and the public, financial stability remains possible with education.