Forty-something virgin property buyers face tough time from lenders

Research shows that first-time buyers are getting older. Chiara Cavaglieri reports on the challenges of finding and managing a mortgage later on in a working life
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The Independent Online

The biggest challenge for most first-time buyers is coming up with the deposit for their new homes.

Lenders' demands are so high that many prospective homeowners are nearing 40 before they have saved up enough money. Unfortunately, the bad news doesn't stop there – although the current market may seem impossibly tough, experts warn that there could be even worse times ahead for late property bloomers.

The average age that people can expect to be able to buy their first homes has reached 38 years and nearly a third of prospective first-time buyers have given up on getting on to the property ladder altogether, according to a study by Moneysupermarket published earlier this month. Buyers in London are even more pessimistic, believing they will be 43 before they can afford to stop renting, citing strict mortgage lending and hefty deposits as the main reasons for the delay.

The credit crunch has been tough on most of us but for those looking to get a first foot on the property ladder, it has been particularly hard. Lenders are continuing to cherry pick low-risk customers with impeccable credit records and charging over the odds to anyone unable to stump up a huge deposit. For those not lucky enough to have access to the bank of mum and dad, there are few options but to sit tight and keep saving.

House prices remain out of reach for many new buyers and it's easy to see why so many people are being pushed out of the market. According to the Council of Mortgage Lenders, the average first-time deposit has jumped from £12,556 at the beginning of 2007 to £26,582 for the same period in 2011 and this despite a general softening in house prices. As a percentage of income, this marks a jump from 41 per cent to 87 per cent and to make matters worse, the council's figures show that annual income for new buyers has fallen over that period, from £34,200 to £32,507. So, the average person looking for their first home is being asked to stump up double the deposit on lower earnings.

The problems are not limited to struggling to get a mortgage, however, there are longer-term implications too, says David Hollingworth, of independent mortgage broker London & Country.

"If you aren't making your first purchase till age 40, that will take you right the way through to age 65. At the same time, lenders are tending to push down on the maximum age at which they will lend and more questions are being asked about how you can afford repayments into retirement," he says.

In addition, if someone takes out their first home loan with a typical term of 25 years at age 40, they are likely to want to take another step up the property ladder in five or 10 years' time. Yet property prices are no longer storming away, so they cannot rely on their home increasing greatly in value to allow them to do this easily, in the way that the baby-boomer generation could. So, a 50 year-old might be forced to take out another mortgage and have only 15 years before they potentially reach retirement age.

"They need to buy a home that will suit them for at least the medium term and be sure to have a clear repayment strategy to avoid heavy mortgage debt as they approach retirement," says Mr Hollingworth.

Lenders are complicating matters even further by squeezing out older borrowers, with most now refusing to offer mortgages that extend beyond the age of 65. As of Friday, Coventry Building Society has gone even further by saying it will start limiting the level of borrowing that it will offer to customers aged 56 and over.

Despite all the doom and gloom, however, experts say this isn't necessarily a trend that will continue. Many lenders have only tightened their age limits in reaction to the huge amount of interest-only mortgages that have been sold over the past 20 years, which saw older customers unable to clear their loans at the end of their mortgage terms.

"It's worrying that recently mortgage providers have reduced their maximum ages for mortgages, but I think this is probably short term. Now that there has been a big shift in mortgage repayment type to capital and interest repayment this should be less of a concern in the future. Hopefully, over the next five-to-10 years, as the Government increases the retirement age, we should see lenders increasing their maximum ages again," says Robert Dibb from mortgage broker Advoco Financial.

Also, over the term of the mortgage, there is every chance that older first-time buyers will be in a position to borrow more due to lifestyle changes – either higher incomes or purchasing a home as a couple rather than on their own. Even if property prices remain stagnant, as long as they have a repayment mortgage they will be reducing their debt each month and increasing the equity, which will help them to provide a bigger deposit for any proposed new purchase.

"The key thing for first-time buyers who are a little longer in the tooth than the traditional first-timer is to plan ahead. You can't predict future bumps in the economic road but you can set yourself targets in terms of your finances and your equity position," says Nicholas Leeming of Zoopla.co.uk.

"Keeping your eyes peeled for deals with better rates when your mortgage is up for renewal will also allow you to maximise the amount of equity you're building up. Buying property in areas where prices are more resilient will also better protect you from equity erosion. So do your homework and steer clear of properties you may have been prepared to gamble on when you were a little younger," he adds.

Determined to be optimistic

One couple's experience

After renting for 20 years, Samantha, 40, an administration manager and her husband, Michael, 45, a substance misuse worker, moved into a three-bed terraced cottage in Romford, Essex, this month after securing a £140,000 Nottingham building society mortgage.

The pair, who have two grown-up children and another on the way, were asked to put down a hefty £40,000 deposit and decided on a loan term of 20 years.

Samantha says they don't have any plans to upsize and although they do have concerns about the future in terms of job security and keeping up the mortgage payments, particularly as the mortgage will run through until their retirement ages, they are determined to be optimistic.

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