Kevin Roberts, director at Legal & General Mortgage Club, explains some of the options available to first-time home buyers
Whether you are a first-time buyer aiming to get onto the property ladder, an older borrower looking to downsize into retirement, or someone with complex borrowing needs, there are products out there to suit your borrowing needs.
Gone are the days when borrowers were limited to restrictive mortgage deals from a few lenders and building societies.
Data published by Moneyfacts shows that there were over 5,000 mortgage products available in July 2018 – a 10-year high. Out of these, there will very likely be one product best suited to your needs and circumstances.
However, for many, it is the process of knowing where to start which can be the most daunting – there is help at hand, though, and it comes in a variety of forms.
Help to Buy scheme
Firstly, if you’re a prospective buyer wanting to own your first home, there are government schemes available. For example, the Help to Buy scheme was launched in April 2013 and since then, it has consistently helped 81% of first-time buyers onto the property ladder who may otherwise been unable to afford a home.
With this scheme, the government loans up to 20% of the value of a property. The borrower then contributes a 5% deposit, while the remaining 75% comes from a traditional mortgage lender.
The government loan is interest-free for the first five years, meaning that payments are manageable. However, it is important to note that only newly built properties can be bought using Help to Buy.
With the average equity loan at £52,000, the Help to Buy scheme has undoubtedly played a fundamental role in providing additional financial support to those who may otherwise been unable to save up for a deposit.
Recent statistics from the ONS show that it takes Londoners nearly 13 years to save up for a deposit and the scheme undoubtedly helps cut down the time needed. Through the scheme, nearly 159,000 completions have taken place, providing nearly £8.3 billion of loans to those looking to make their first moves.
Shared ownership
Shared ownership also provides an affordable alternative for first-time buyers; giving borrowers the chance to get onto the ladder with, again, as little as a 5% deposit.
With this tenure, a borrower purchases part of a share in the property, using a loan from a high street bank or mortgage lender. The remainder of the home is then owned by a registered third party, usually a local housing association, and the homeowner will pay rent each month to this organisation. As time goes on, the borrower has the option to ‘staircase’, buying a bigger share and eventually the whole property.
The scheme is, however, still largely underused and for those that work in the industry, it is widely acknowledged that there is more work to be done to promote its benefits. This is especially true when considering how many young adults still rely on their parents for additional funding.
Bank of Mum and Dad
Young people are increasingly getting on the housing ladder using the “Bank of Mum and Dad” to help boost their deposit.
Legal & General’s recent Bank of Mum and Dad research found that some 27% of homebuyers will receive this kind of financial assistance in 2018, providing an average contribution of £18,000. Whether this is a gift or loan from your family, we are starting to see many banks and building societies release innovative products to assist those buying with parental support, such as the Post Office Family Link Mortgage
Older borrowers
But it is not just first-time buyers who are benefiting from innovation in the market – older borrowers too have a wide range of products to choose from.
The equity release market continues to grow and the launch of retirement interest-only mortgages earlier this year has increased the choice for older borrowers.
Remortgaging
For those already on the property ladder, you may be interested in remortgaging and fixing onto a lower rate. For example, borrowers who are on an SVR or coming to the end of their term have the potential to save over £2,000 a year on their monthly mortgage repayments, which could easily pay for home improvements or that much longed-for family holiday.
But it is important for borrowers to act fast. The Bank of England recently increased the base rate to 0.75%. The first time above 0.5% in over ten years. Whilst we should remember that rates are still very far from the near double-digit levels of the 1980s and 1990s, these rates will not last forever.
For those looking to fix a low rate now to protect themselves against future increases, speaking to an adviser is a great place to start. With extensive product choice and their support they will be able to help you find the best product to suit your circumstances.
No matter what stage of the life journey you’re at, the mortgage market caters for each and every one and their borrowing needs. By speaking with a mortgage broker, you’ll be able to gain access to up to thousands more products, whilst finding the best fit for your borrowing needs.
