First time buyers who have struggled to raise a sizeable deposit will be cheered by the news that mortgage providers are beginning to relax their lending criteria and increase their maximum loan-to-values (LTVs).
While pre-credit crunch, it was easy to borrow with a deposit of as little or 5 or 10 per cent, this has got increasingly difficult over the past two years, as there has been a massive drop in the number of high LTV mortgages on offer - and 90 and 95 per cent LTV mortgages have all but disappeared from the market. That said, over the past few months, providers have started to become more competitive on the LTV front once again.
LTVs on the up
According to figures from financial analyst, Defaqto, in November 2007 - pre-credit crunch - the average maximum LTV for prime residential products stood at 89.48 per cent. A year later, in November 2008, when the credit crunch had taken hold, the average had dropped to 76.67 per cent, and, over the months that followed, this figure then dropped steadily, hitting a low of 74.63 percent in April this year.
Encouragingly, this figure has edged back up since then, and currently stands at 76.45 per cent. “Pre-credit crunch, the average maximum LTV was just under 90 per cent,” said David Black from Defaqto. “But over the last year, it’s been bumping along around the mid 70s - with a slight upwards trend since the April 2009 nadir.”
Higher LTVS - but they come with higher rates
While this upward movement in LTV will be welcome news for first timers looking to take advantage of a buyers' market, it's not all plain-sailing, as lenders are not being quite as accommodating in the cost of their mortgages.
“Lending conditions have started to thaw slightly, but we have a long way to go before we are back to where we were before the credit crunch first hit,” says Melanie Bien from broker Savills Private Finance. “In recent weeks, Nationwide building society has announced some competitive rates at 90 per cent LTV, HSBC has pledged to do more lending at this level, and the Woolwich is offering its trackers at 75 per cent LTV for the first time since Autumn 2008.”
The best deals, however, are still being reserved for those with hefty deposits. “The simple fact is, lenders prefer less risky customers,” says Bien. “HSBC's average LTV, for example, is less than 60 per cent, and many other lenders are similarly fussy about who they will lend to.”
Save for a deposit
Gloomy as it sounds, there's no escaping the fact that while property values have fallen - making property seem more affordable than it has for a long time - it is still extremely hard for first timers to take the first step.
According to Black, the best deals are only available to those with deposits of between as much as 25 and 40 per cent. “It is almost impossible to get finance unless you have a sizeable deposit,” added Bien. “And if you have just a small proportion of the purchase price to put down, you will end up paying a considerable premium on the rate.”
Stymied by stamp duty
As if all this wasn’t enough to contend with, there is also the not-so-small matter of stamp duty. Since September 2008, first time buyers have had a reprieve as there has been a stamp duty holiday in place for properties under £175,00 – and this has been a big help to borrowers buying at the lower end of the market who have not had to fork out up to £1,750.
However, this is due to end on 1 January, which means home buyers will once again face a 1 per cent tax - giving first timers yet another cost to consider when calculating whether they can afford to buy a property. “At a time when first time buyers are still struggling to access mortgage finance, the risk is that ending the holiday could arrest the tentative improvement in turnover,” says Simon Rubinsohn from the Royal Institution of Chartered Surveyors (RICS).
The National Association of Estate Agents adds that ending the holiday could have a detrimental impact on the current momentum of market recovery.
“The danger is that this short-sighted policy could precipitate an unwelcome pause in the housing market at the start of the New Year,” says NAEA spokesman Gary Smith.
Start saving
If you do want to take advantage of the depressed housing market, you need to get serious about saving - not only for the deposit, but also for stamp duty, legal fees, surveyor's fees and moving costs. And remember, the best deals are reserved for those with big sizeable deposits, so if you can 't buy now, the key is to keep on saving.
Further Reading:
A Confused.com guide to stamp duty
Should you rush to remortgage on the back of recent house price rises
New mortgage rules will hit borrowers
