2007: the year of the newbie

For first-time buyers, 2006 brought both good and bad news. Rising interest rates, and continuing rises in house prices, continue to stretch affordability. The average home now changes hands for 6.1 times average salaries, more than twice as much as it did 20 years ago.

People have to wait longer to buy their first property: the average first-time buyer now is well into his or her thirties. They are more likely to buy with friends, ask relatives for guarantees or seek to buy with no deposit.

At the same time, it is in the interests of everyone - including house-builders, mortgage lenders, private sellers, even the Government - to keep the market moving. For that, they need first-time buyers. As a result, both lenders and the Government have introduced measures to help first-time buyers and others with limited resources to take that first step.

The initiative that attracted most attention was the Government's Open Market Homebuy scheme. The scheme wasn't new, but in October it was extended to include private-sector lenders. First-time buyers borrow 75 per cent of the funds they need in the usual way, but top that up with two additional loans, one from a bank and one from the Government. Borrowers pay no interest on the top-up loans, at least initially; instead, the bank and the Government will take a share of the proceeds when the home-owner sells.

The scheme is likely to be more significant for breaking new ground - as a partnership between the Government and lenders - than in the deals on offer right now. "The products themselves are limited," says Melanie Bien, associate director at mortgage brokers Savills Private Finance. "Rates aren't great, with early repayment charges for five years. Because of this, it is really a last resort for those who can't get on the ladder any other way."

Open Market Homebuy is one way to buy a property if you can't raise a deposit, but changes in lenders' own policies might help a greater number of buyers.

In the past 12 months there has been a rise in the number of institutions that will give 100 per cent mortgages. A borrower without a deposit is no longer at a huge disadvantage. At the same time, the number of lenders that base mortgage decisions on affordability, rather than income multiples, has also risen.

Abbey attracted publicity for agreeing to lend five times salary to some buyers. But several mortgage companies had already introduced similar changes; some buyers, especially those on above average incomes, may be able to borrow up to six times salary.

"Affordability-based lending has resulted in first-time buyers having a much better choice of lender or deal when they can afford to borrow on a higher income multiple," says Ray Boulger, senior technical manager at the mortgage brokers John Charcol. "Competition in the 100 per cent and 100 per cent-plus market also gives first-timers a better choice if they have no deposit." The need to attract first-time buyers has prompted some lenders to be creative.

A number of mortgage companies have improved their range of loans in this area, including mortgages aimed at sharers; at graduates or professionals; or at people buying with parental help. Northern Rock introduced a scheme that combines a mortgage with a personal loan of up to £30,000.

Other initiatives involve the mortgage lender taking an equity stake in the property, rather than charging the full interest, and working out affordability based on how much a buyer had been paying in rent.

"We have seen a number of innovative mortgages," says Helen Adams, managing director of first-time buyer advice service First Rung Now. "Particularly interesting are the specialist broker 'all types of mortgages' product, which bases its view of affordability on how much rent you've successfully paid. They may lend up to five and a half times yearly salary.

"There was the 'shared appreciation' mortgage from Advantage, the lending arm of Morgan Stanley. This enables moderate-income households to buy property with a mortgage plus a low-cost top-up loan in exchange for a share of equity growth."

The experts predict that house prices will continue to rise, albeit modestly, so expect more new deals aimed at first-time buyers.