With first time buyers struggling to raise hefty deposits, we look at the help available from lenders and house-builders.
The outlook for those trying to get on the first rung of the property ladder has been pretty bleak, but there are now signs that things are looking up.
Yes, recent figures from the Council of Mortgage Lenders (CML) show the average deposit for first-time buyers is £31,500, and the average age of a first-timer is 37, but we are finally starting to see help in the market.
Increase in higher LTV deals
Encouragingly, first time buyer mortgages at reasonable rates have improved in the past year, and a growing band of lenders are now offering higher loan-to-value (LTV) mortgages, but to get one, you’ll need a spotless credit history.
Northern Rock offers 90 per cent LTV
At the start of the month, Northern Rock once again began offering mortgages at 90 per cent LTV.
The announcement attracted the inevitable criticism from those who remember the lender’s collapse in 2007, claiming this is a return to risky loans.
However, there is also a feeling that the move is an important step towards creating a mortgage market that functions well – and that the loans will help meet public demand.
“Northern Rock’s return to 90 per cent LTVs is good news as, in time, more choice will mean lower rates,” says Melanie Bien from broker Private Finance. “However, borrowers won’t find cheap rates as the lender has been honest about the fact it is offering 90 per cent deals in order to boost profits.”
For example, a five-year fix with Northern Rock is priced at 6.59 per cent – which is quite expensive – although on the plus side, it doesn’t charge a fee.
Other higher LTV deals
Elsewhere, Skipton building society has launched a deal at an even higher 95 per cent. Available through the broker, Connells, the lender is offering a rate of 6.49 per cent for a two-year fix with a £195 fee.
Clydesdale and Yorkshire Banks are also offering first time buyers a 95 per cent LTV mortgage, fixed for three years at 6.99 per cent with a £599 fee, and there are now hopes that other lenders will follow suit.
The use of guarantor remains a key part of the first-time buyer market, as by acting as guarantor, parents can increase the level of borrowing available.
“Parents must give additional security to schemes such as the guarantor products from Bath and National Counties building societies,” says David Hollingworth from broker London & Country. “With the Lloyds lend-a-hand scheme, borrowers with a deposit of just 5 per cent can qualify for mortgage rates normally available only to those with 25 per cent, provided the parents deposit a cash sum equivalent to 20 per cent of the purchase price in a Lloyds savings account. The advantage, other than rate, is that parents also get to retain the savings in their own name.”
Alternatively, lenders such as The Mortgage Works have launched specific products including an option where the parent only carries a limited liability for the amount the child cannot borrow in their own right.
As well as lenders, house-builders have also been very innovative, and there are now a host of options for those looking for a new-build home.
“First time buyers purchasing from Taylor Wimpey can get 95 per cent mortgages from Melton Mowbray and Saffron building societies,” says Bien. “Bovis also has a tie-up with the Woolwich, enabling buyers to get 90 per cent mortgages, while the house-builder provides the lender with the mortgage indemnity guarantee (MIG).”
Elsewhere, Barratt Developments has taken a slightly different approach in its tie-up with Hitachi Capital, offering parents a loan of up to £50,000 to cover their child’s deposit.
Other options for aspiring first timers include getting parents to help with a deposit, or to jointly purchase the property.
You could also consider clubbing together with friends or siblings to buy, but if you go down this route, make sure you know what you are getting into – and how you will get out of it.