Buying a home is now considered by some as more important than a successful career, getting married or even having a child.
This desperation to get on the property ladder was highlighted in Yorkshire Building Society’s survey of 16 to 40 year olds. But with average property price topping £135,000, borrowing limits and the average UK wage at £25,000, even scraping together a deposit is proving tough for many.
YBS spokesperson, Tanya Jackson says having a home is so important for some, there is no limit to the extremes some will go to secure a mortgage.
She says: “People are resorting to buying with virtual strangers in order to get on the property ladder, or even lie about their income to get a mortgage.”
A jump in house prices over the last decade and the resulting affordability stretch means many are waiting until they are older to buy their first home. NatWest Mortgage Services says a third of FTBs are now in their mid-thirties, while a fifth are waiting until 40 to get on the property ladder.
Michael Brill, mortgage specialist at Ilford-based advisers Baronworth says FTBs are starting to get more help from lenders. “First-time buyers are crucial to keep the property market going. Thankfully lenders have started to realise this and are coming up with more innovative products.”
Affording it
A lot of prospective first-time buyers are worried about the prospect of taking on a mortgage, says Brill.
“But you’re probably already paying out the equivalent of a monthly mortgage payment when you pay your rent. What is stopping you owning your own home is the fact your income isn’t enough to match the dramatic rise in house prices.”
However there are ways around this, says Brill. “If you can stomach it, a guarantor mortgage is an option, where your parents income is enlisted into the calculation to help leverage a higher loan than your income normally allows.”
Chelsea Building Society has launched a Helping Hand range which uses the income of a parent or close family member to allow buyers to borrow more than the average 3 and half times multiple. The downside is that if you default on your mortgage payments, your parents become liable for any shortfall so parents must take legal advice before signing on the dotted line.
Chelsea’s Helping Hand offers a three-year fixed rate of 5.19 per cent with a higher lending fee if you borrow over 90 per cent of the property’s value.
The Bank of Ireland through Bristol & West is offering the same rate on its three year fixed deal, which is part of the First Start range. The mortgage has no arrangement fee and lets you borrow up to 95 per cent.
Also remember, if you are going to borrow your deposit from your parents, remember that mortgage lenders considered this a loan which can potentially reduce the amount you can borrow when you apply for your mortgage.
Spreading it out
A longer mortgage repayment period, which will lower your mortgage repayments for the first few years, is another option. Heather Scott, of online mortgage lender Intelligent Finance.com, says: “We’d never advocate a longer mortgage than is absolutely necessary – but if the alternative is renting its a compelling proposition – especially for a first-time buyer who could be starting out career-wise on a lower salary.
For example, IF suggests a 25-year mortgage on a loan of £150,000 produces monthly repayments of £834.54, a 35 year term produces payments of £720.28 and over 40 years payments of £688.11 per month.
Many mortgage loans offer flexible features including overpayments. So even if you opt for say, a term of 40 years, regular or occasional overpayments can shave down the term until you are ready to move to a shorter term and higher monthly repayments.
Ray Boulger, senior technical director at John Charcol, says loans with extended terms are initially more affordable, but borrowers should be aware that they will end up paying more interest.
On the way up
First-time buyers who are likely to see their salaries increase dramatically are also being wooed with deals such as Bradford & Bingley’s professional FTB mortgage.
It’s aimed at solicitors, accountants and actuaries and like YBS allows you to borrow up to 100 per cent of the property value and depending on salary, a loan multiple worth 4.75 times your salary.
Sean Murphy, product development manager at Bradford & Bingley said: We felt that there was a gap in the first time buyer market, which other lenders had been slow to explore. Young professionals that are not yet fully qualified and on a ‘training contract’ can now benefit from being able to get a foot on the property ladder sooner than expected.
