The average house price paid by a first-time buyer pushed through the £150,000 mark last year, according to Halifax. Any effort to grab that first rung is also thwarted by stamp duty, with a staggering 68 per cent of first-time buyers now liable to this punitive tax, according to research from Bradford & Bingley.
With fears of prices soaring even further out of reach and another possible rate rise on the horizon, there is help available. Lenders have devised a variety of schemes and methods to give a much-needed boost to those who lack the income or deposit to buy.
Find out how much you can borrow
Professional help
Professional mortgages are offered to those working in medicine, teaching, dentistry, and accountancy, as well as optometrists, solicitors, vets and pharmacists. Bristol & West also includes commissioned military officers in its list.
These schemes were introduced to offer better terms than those available with traditional loans, including high income multiples and the ability to borrow over 100 per cent of the purchase price. For example, Scottish Widows Banks professional mortgage allows people to borrow up to 110 per cent of the purchase price.
These deals can be useful for those who want to borrow more than 100 per cent of the propertys value, but there is not a great take-up now as so many lenders are offering high income multiples and better rates on standard mortgages, says Katie Tucker, mortgage specialist at broker John Charcol.
Several lenders also offer deals intended to help graduates buy homes. Graduate mortgages are available from HSBC and Scottish Widows Bank, among others, and offer 100 per cent mortgages, generous income multiples and no higher lending charges.
Find a new mortgage deal
The bank of mum and dad
Parents who have sufficient equity in their property could remortgage to free a lump sum and give this to their children to use as a deposit. Another possibility to give a step up on to the ladder is a guarantor home loan, where repayments are underwritten by parents.
Bristol & West and the Bank of Ireland both offer First Start mortgages. These deals work by offering a higher loan amount by adding the parent to the mortgage. The parent is not listed on the property deeds, unlike with guarantor mortgages, which will simplify any future tax issues as they wont own part of the property, adds Tucker.
Changes to help homebuyers
Lenders have lept to the challenge to help first-time buyers by introducing new products and becoming increasingly flexible when it comes to lending criteria. For example, Alliance & Leicester, Nationwide and Halifax can all lend over 40 years. While this can help with affordability,
it should not mask the fact that borrowers end up paying far more back over a much longer time period than the standard 25 years.
calculate your mortgage repayments here
Lenders also offer borrowers loans of more than 100 per cent of the property value. Northern Rock and Coventry will loan up to 125 per cent, says James Cotton of broker London & Country.
However, be wary of the higher lending charge (HCL). Some lenders levy this charge, also called a mortgage indemnity guarantee (MIG), on first-time buyers, when they borrow more than 90 per cent of the value of the property.
Some lenders now offer more than five times an applicants salary, such as Abbey, although eligible borrowers need a high income and clean credit record, which rules many first-time buyers out.
Fee-free deals are also an option. Most of these will pay a combination of legal fees, arrangement fees and valuation fees, says Andy Wiggans of Bradford & Bingley. In some cases lenders will pay for all three. Bradford & Bingley offers free valuations on its higher loan-to-value mortgages.
Interest-only options
With an interest-only loan you just pay the interest on the money you have borrowed. This has the effect of making the monthly payments very much more affordable, because you dont have to find money to start to repay the capital debt.
According to the Council of Mortgage Lenders (CML), the number of interest-only loans taken out in 2006 was up by 33 per cent, to 222,400. This form of borrowing can help you get on the first rung, but it comes with the warning that borrowers must have a repayment plan in mind to tackle the debt.
This plan can be simply selling the property in future or switching to a repayment mortgage a few years later, but borrowers must ensure they have a firm idea of how the debt will be repayed or an interest-only loan can be a dangerous strategy, warns Tucker.
Find a best-buy mortgage
Shared ownership
For many first-time buyers, shared ownership schemes offer a solution to their problems, although these are primarily reserved for key workers public-sector employees such as teachers and nurses.
This involves buying a share in a house or flat of as little as 10 per cent, and paying a subsidised rent on the remainder of the property, which is owned by a housing association. Some or all of the remainder can be bought at a later date.
The governments Open Market HomeBuy is one form of shared ownership which allows first-time buyers to pick any property they choose. Borrowers who sign up to the scheme will take out a mortgage on 75 per cent of the value of the property and will be given an interest-free loan from the lender and the government on the remaining percentage. After five years a rate of 3 per cent will become payable on the lenders part of the equity loan, but there will still be no interest to pay on the governments portion.
Nationwide, Yorkshire and Halifax are three lenders which offer these schemes. The catch is you only own a part share in the property and the mortgage rates are higher than the cheapest mortgages available to other first-time buyers. You will also have to repay the loan if you sell the property.
Rent-a-room mortgages
Under the rent-a-room scheme, you can receive up to £4,250 a year tax-free if you take in a lodger, and some lenders allow you to borrow more by adding this sum to your income.
For example, broker John Charcol is offering a deal from West Bromwich aimed at buyers who intend to take a lodger, at 5.99 per cent for a two-year fix with a £699 fee. You can add £4,250 to your annual income for the first room rented, then a further £3,188 for a second room.
Buying with friends or family
More first-time buyers are buying with friends or family members to increase their borrowing potential. Most mortgage lenders will allow up to four people to apply together for a mortgage, so friend can pool their incomes and deposits together.
Its worth considering renting together for a while first, however, to check if you are really suited to living together before committing to a mortgage. If you enter into an arrangement with people other than relatives, watch out for difficulties if one party wants to move out. Consult a solicitor before you sign up to your mortgage and draw up an agreement stating what will happen if one of you wants to move out.
There are numerous pitfalls, both legal and practical, but sharing the purchase of your home with others can certainly bring costs down.
Loading ...