Why first-time buyers need advice as well as incentives

Every few months it would seem, political attention swings back to first-time buyers. They remain one of the most talked-about yet – I’m convinced – least understood groups in the housing market; a segment that politicians of all stripes promise to help, but rarely with the full picture in mind.

At the Conservative Party Conference this month, we heard new proposals aimed squarely at younger voters: a potential tax rebate to help first-time buyers save for a deposit, and a commitment to scrap stamp duty altogether.

Whatever you might think of the current state of the Conservative Party, these are eye-catching proposals, and certainly place pressure on the Government to respond. There will be few, if any, in our market who wouldn’t welcome stamp duty being abolished as there has long been an argument to suggest it hinders transaction numbers, and therefore overall tax-take.

These measures, if delivered, could obviously also reshape affordability for many who currently feel priced out. After all, the number of first-time buyers paying stamp duty has risen sharply since the end of the last temporary holidays, and any relief on that front would be welcome.

We therefore await to see how the Government responds at next month’s Budget. I suspect that doing nothing has become even less of an option now.

However, as with every incentive, there’s a risk that the headlines mask the complexity beneath. Changes to tax or stamp duty may improve the mechanics of affordability, but they don’t simplify the process of buying well. And that’s where advice matters most.

I don’t think anyone doubts shifts in thresholds, the abolition of stamp duty and/or targeted support for deposits could make homeownership more achievable for a broader range of people. Yet without access to professional mortgage advice, there’s a danger thousands who could now afford to buy won’t even realise it, or worse, proceed down a path that isn’t suitable for them.

The truth is, first-time buyers today face one of the most complex sets of choices the market has ever offered. They need to understand not just their affordability, borrowing capacity, but which schemes they can use, how to balance deposit versus loan size, how they might utilise family support, what protection products they should consider, I could go on. There is much to unpack.

And what they should certainly understand from this, is that they can achieve a more stable, long-term outcome by taking advice across multiple financial areas.

And yet, my worry is that the value of advice is being eroded, even for those who need it most. The removal of the advice interaction trigger might only be for those refinancing, but what message does it send? And will we see a growing regulatory belief that technology and AI can produce the same outcomes as advisers themselves? Read the Discussion Paper and it’s not hard to draw this conclusion.

That’s why I believe the case for mandatory advice for first-time buyers is stronger than ever. It’s an idea I think which originated from Sebastian Murphy at JLM Mortgage Services, and one the industry could and should rally behind.

We already accept mandatory advice in areas far less consequential than a first mortgage. It’s hard to argue that a consumer entering a transaction worth several hundred thousand pounds – likely the largest financial commitment they will ever make – should be left to navigate it alone.

Mandatory advice also removes risk, although I’m also conscious that the FCA appear to gearing up for an environment where greater risk-taking is accepted. Even encouraged.

In my view, advice is right for everyone. But we should certainly all want to ensure those who are completely new to the process understand the full range of options available to them. That might include low-deposit schemes, joint borrower options, shared ownership, or longer-term fixed rates that provide stability, amongst others.

If stamp duty is scrapped, or if rebates start to boost deposit savings, then a new cohort of potential homeowners could emerge almost overnight. People who thought they were priced out may suddenly find that a mortgage is within reach.

But without advice, many of them may never take that step because they don’t know what’s possible, or because they are put off by the complexity involved in choosing the right product. Or, even worse, they hold a finger up in the air and take a punt.

The first home purchase often sets the foundation for every financial decision that follows. Done well, it creates stability, wealth, and confidence. Done badly, it can have long-lasting consequences.

Therefore, if policymakers really want to help first-time buyers, they should look beyond the incentives and focus on ensuring the right framework of advice, protection and guidance. By all means, reduce the costs and ease the barriers, but make sure professional advice is at the very heart of the process for every single person.