Mortgage affordability : First-time buyers ‘hear what they want to hear'

First-time buyers have a habit of hearing what they want to hear when it comes to affordability, senior technical manager of John Charcol Ray Boulger and market analayst Kate Faulkner have warned.

Faulkner argued that lenders need to find a way of making sure the consumer has fully understood the adviser.

She said: "I don't think first-time buyers always hear what advisers say about affordability being ongoing.

"The way I see it, when you are buying your first home you are buying into home ownership for 25 years, and 25 years ago interest rates were 10-15%."

She added: "Advisers need to conduct test scenarios to make sure buyers understand what they are saying.

"For first-time buyers all they've known since 2007 is 2 and 3% interest rates.

"I've been talking to people who say ‘I'm not going to buy at 5% as it will go down.'"

Boulger responded: "I think it's fair to say that people tend to remember what they want to hear – her point is very valid.

But he added: "For advisers to go back to the consumer a few days later isn't very practical.

"It's best to put it in writing – the vast majority of brokers do that."

He also questioned whether advisers need to consider stress testing over longer periods, as he said "people can only absorb so much information".

He added: "Realistically even trying to forecast what is going to happen for five years is difficult.

"I think there is certainly considerable value in highlighting to first-time buyers that we are in a historically low interest rate environment, but I doubt whether there's a value in pointing out that 25 years ago rates were at 15%.

"It's difficult to know what people's situations are going to be in 15 years.

"With couples many of them could have split up, one of them could have their pay go up, the other could lose their job.

"You need to get the balance right."