Flexible loans give first-time buyers a break

First-time buyers are becoming an endangered species, accounting for just over a quarter of all mortgages taken out in August, says the Council of Mortgage Lenders. High property prices combined with five interest-rate rises in the past year are making it harder than ever to buy a place of your own.

First-time buyers are becoming an endangered species, accounting for just over a quarter of all mortgages taken out in August, says the Council of Mortgage Lenders. High property prices combined with five interest-rate rises in the past year are making it harder than ever to buy a place of your own.

But all is not lost. Lenders are coming round to the idea that they need to do more to help first-time buyers. Bristol & West (B&W) and HSBC launched mortgages targeted at this group last week.

B&W's 1st Start mortgage was originally developed by Bank of Ireland, its sister company. This enables child and parent, or another family member, to take out a joint home loan; because both incomes are taken into account, a greater sum can be borrowed than if the child were purchasing alone.

The main advantage of 1st Start is that parents can help their children without handing over wads of cash they might never see again. With so much pressure on us to fund our own retirement, parents may be reluctant to give away money they might need in the future.

HSBC is taking a different approach, enabling first-time borrowers to repay only the interest on their mortgage for the first three years. After this, they revert to a repayment deal, so that the capital is repaid at the end of the mortgage term.

By paying just the interest on their loan, borrowers can use the cash they save to pay solicitor's fees, stamp duty and removal costs, and furnish their new home. HSBC says a customer with a £90,000 mortgage on a £105,000 property taken over a 25-year term would save around £134 a month or £4,824 over three years, which should more than cover the cost of moving.

The only problem with this deal is that buyers must budget for a huge jump in payments after three years when they start repaying the capital as well as the interest.

Neither lender charges mortgage indemnity guarantee, while both offer a choice of three rates: B&W has a two- or three-year discount (with current pay rates of 5.45 and 5.55 per cent respectively) or a five-year deal fixed at 5.89 per cent.

HSBC has a two- or three-year fix (both 5.49 per cent) or a variable rate, which is currently 5.75 per cent. This is guaranteed never to be more than 1 per cent above the base rate.

These aren't the cheapest rates on the market but they aren't the worst, either. And the added extras might give first-timers the break they need to get on the property ladder.