Kate Hughes: The 'take generation' ought to be able to save for their own deposits
There's a catch to this 95% mortgage. But it's still a good sign that the banks are beginning to think differently about helping first-time buyers
Sunday 24 May 2009
Please don't hurt me. I'm about to praise a bank for its mortgage. Lloyds TSB launched a first-time-buyer's loan offer last week that has sent financial experts scurrying to predict the return to health of the mortgage market, despite news last week of a further slump in mortgage lending levels.
The three-year deal, called Lend a Hand, offers first-time buyers a 95 per cent loan-to-value mortgage at 4.39 per cent by taking a legal charge on a savings account belonging to their parents. So there's a lot going on there. First, the rate is better than the typical rate for 90 per cent mortgages at 5.98 per cent. Second, it's a 95 per cent mortgage, and we haven't seen many of those for a while. And then there's this parent bit, and the cynical among us would be looking for the catch here. The legal charge means parents retain ownership of their savings – at a decent rate of 3.5 per cent, though the best buy for a three-year savings product is currently around 4.35 per cent from ICICI Bank. At the end of the three years, if the combination of repayments and rising house prices has moved the mortgage from 95 per cent to 90 per cent LTV, the legal charge on the savings account can be removed and the first-time buyer can operate the mortgage account independently.
As you can imagine, mortgage commentators who have spent the past year complaining about the banks' responses to the credit crunch are loving it. "Product innovation such as this deal from Lloyds TSB will give a much-needed shot in the arm to the first-time-buyer market," says Andrew Hagger of Moneynet. "An increase in FTB activity can only have a positive knock-on effect further up the property chain."
"Not only is the rate competitive, but it's really good to see some new activity in the high loan-to-value market," says Clare Francis of moneysupermarket.com. "It is another indication that funding pressures on lenders may, at last, be starting to ease. We need products like this to help to kick-start the housing market, as the absence of first-time buyers has been one of the main factors blamed for the severity of the downturn."
Yes, it's a great way to help to loosen up the market by encouraging the first stage in the conveyor belt to get involved again. And yes, it's a great way for parents to help out – in fact, 70 per cent of parents would like to help their first-time-buyer kids.
But we're not out of the economic woods yet, not by a long shot. With more bad news on redundancies likely for the rest of 2009, and the knock-on effect that may have on dropping property prices, parents may not get their money back after those three years if the loan hasn't dropped to 90 per cent. And if the mortgage holder defaults on their repayments, ultimately, the parents' savings will be used to pay for any shortfall at repossession.
Here's hoping things improve quickly, eh? Or at least quickly enough to give your parents back the cash if they need it, for, ooh I don't know, the increase in medical costs that tend to come with older age, or if they lose their jobs, and all this assumes parents happen to have 20 per cent of the property value – an average of more than £30,000 – lying around, not earmarked for retirement funding, for example.
Don't get me wrong. I'm part of the "take generation" too, and it's not as if the folks aren't subbing me for other things, dinner, my TV, that trip to the States.... And they too have offered to stump up a deposit so I can escape the circus that is the London rental market. But my parents are the typical sandwich generation – financially supporting their parents and their own children while fast approaching retirement themselves. They don't need the added pressure simply because I fancy something I haven't saved for. I'm not prepared to pass on the risk that the banks are more than happy to hand to someone else rather than reintroduce a true 95 per cent loan.
And anyway, surely this is an extension of the mentality that got us into this trouble in the first place – buying things we can't afford. Yes, affordability has improved thanks to the drop in house prices, so first-time buyers may not be as financially overstretched as they were at the end of 2007.
But if you haven't managed to scrape together a deposit of more than 5 per cent, despite the lower prices and the falling cost of living, can you really be confident that you can afford not only the repayments, but also the surveyors', solicitors' and admin fees, decorating and furniture? And that's just for starters. God help us, no sorry, God help our parents bank accounts if later down the line it turns out the wiring is dodgy as well.
Independent Partners: Get fee-free expert mortgage advice and find the right mortgage deal for you.
- 1 Games of Thrones actor Lena Headey makes emotional promise to her unborn daughter
- 2 Isis burns woman alive for refusing to engage in 'extreme' sex act, UN says
- 3 Puerto Rico, island of lost dreams: People are leaving the debt-hit territory in droves as near neighbour Cuba's star rises
- 4 Female Muay Thai champion hustles coaches to give them a beating
- 5 Picture of couple posing with beached dolphin 'that later died' causes outrage
As a white man, I'm surprised more women aren't tweeting the hashtag #KillAllWhiteMen
Scotland may have to leave the EU even if it votes to stay in, David Cameron confirms
Report finds that Britain's wages are the most unequal in Europe
The day that Britain resigned as a global power
Almost a third of school pupils believe 'Muslims are taking over our country', study claims
SNP fury as HS2 finds 'no business case' for taking fast train service to Scotland
iJobs Money & Business
£40-50K: Guru Careers: We are seeking an experienced Software / C# Developer w...
£45,000 - £55,000: Neil Pavier: Are you looking for your next opportunity for ...
£45,000 - £55,000: Sheridan Maine: Are you a newly qualified ACA/ACCA/ACMA qua...
£50,000 - £60,000: Laura Norton: Are you looking for an opportunity within a w...
Day In a Page
On the market for the first time in more than 50 years, this six-bedroom home is a project with vast potential - spread over three floors of living space.
This five-bedroom home comes with a range of outbuildings including a large barn which could be converted into a self-contained granny-flat or rental.
Surrounded by rolling countryside, this four-bedroom barn conversion comes with a self-contained, one-bedroom annexe that could serve as an office or a holiday let.
Located near Harrogate town centre, this five-bedroom Victorian terrace is arranged over three storeys while a current study serves as an optional sixth bedroom.
A ground-floor flat in a country house, located a mile from Sway; this two-bedroom home would make an ideal weekend retreat on the edge of the New Forest.
On a popular residential lane in Caterham on the Hill, this four-bedroom family home offers a secluded garden and a convenient location for local schools and public transport.
Just a short walk from Westerham green, this three-bedroom cottage has a light kitchen with exposed brickwork and double doors that lead to a south-facing garden.
In a prime spot opposite the River Thames, this one-bedroom flat has an 18sq ft reception room with glass doors that open out to a private terrace.
Set in the hills above Llanwrda Village, west Wales, this 18th-century three-bedroom farmhouse has holiday-let potential from a separate barn conversion and annexe.
This charming end-of-terrace townhouse is arranged over three floors, with two double bedrooms and a private courtyard garden located at the rear of the property.
This four-bedroom Edwardian home offers a combination of original features and contemporary design after a renovation by the current owners.
Located in the University area, this semi-detached five-bedroom home is arranged over three floors - there's even a rear garden and off-road parking too.
Only a few minutes' drive from the charming town of Marlow, this two-bedroom home sits on the private riverside estate of Harleyford.
This detached four-bedroom home in Middleyard is arranged over two floors, with features that include a wood-burning stove and bespoke oak staircase.
In a row of eight detached Georgian residences, this five-bedroom home offers views of The Sound, Mount Edgcumbe and Cornwall from its impressive veranda and full-length balcony.
If you love cooking for friends this two-bedroom flat - complete with views of the iconic Battersea Power Station and an open-plan kitchen/dining area - will go down a treat.
Located above Grasmere village, this five-bedroom home is arranged over three floors and offers countryside views across Grasmere Lake towards Silver Howe.
Surrounded by the Western fells, this five-bedroom Georgian home retains many original features including panel-plastered ceilings, sash windows and fireplaces.
This six-bedroom home is set amongst three acres of grounds. Currently a large family home, Clift Hill has potential to make a B&B, subject to change of use permissions.
A former period coach house, Glebe Farm Stable is now a three-bedroom cottage with a double car barn, office, kennels and an outbuilding that's currently used as a gym.
Set sail for this four-bedroom farmhouse in Cowes. With five acres of land and an indoor pool, this home oozes character. There is even potential to let a one-bedroom annexe.
Surrounded by woodland, this five-bedroom manor house has plenty of outdoor storage space in the form of three converted loose boxes, two smaller outhouses and a woodstore.
This four-bedroom detached home comes with a double carport, useful workshop, garden and two walkways that offer views of the adjacent countryside.
With space for an equestrian business, a greenhouse for growing your own veg, a wine store and a gym; this five-bedroom home has all the ingredients for a country retreat.
This four-bedroom home has exposed brick chimneys and a vaulted ceiling in a breakfast room that's ideal for summer entertaining - the doors open to the patio and garden.
The decked roof terrace of this two-bedroom flat is perfect for summer drinks while large windows and ample storage space make for a light and spacious interior.
Surrounded by approximately 15 acres of grounds, this six-bedroom grade II-listed home has been extensively refurbished yet retains many period features.
This four-bedroom home comes with a two-bedroom cottage and commercial office, with planning to extend, in a stunning courtyard setting.
In a pretty Norfolk village, this four-bedroom family home is surrounded by landscaped gardens, with even a self-contained annex for guests.
A few miles from the seaside at Perranporth, this four-bedroom farmhouse sits amongst nine acres of idyllic grounds - including a lake and two barns used as holiday lets.
This five-bedroom home is arranged over three floors of a converted Victorian hospital, offering spectacular views of the Pentland Hills - only three miles from the city centre.
This four-bedroom detached home comes with grounds that span to approximately 2.5 acres, as well as two large patio areas and a double garage.
This four-bedroom cottage is a Grade II-listed town house, well-located for the thriving market town of Nailsworth.
A four-bedroom apartment on the ground floor of a stunning period property in North Yorkshire, with two kitchens and a large south-west facing garden.
This high-spec two-bedroom home is part of a smart collection of new flats at Beaufort Park and has a large decked balcony that's perfect for summer drinks.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Overlooking a golf course, this six-bedroom Edwardian detached home spans four storeys and retains many period features including the original, operational servants' bells...
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
In a Grade II-listed manor just outside of Bath, this three-bedroom home is arranged on two floors with a skylight in a vaulted roof line.
Open the living room's bi-fold wooden doors to reveal a retro-style kitchen, and a conservatory leading to a paved garden at this three-bedroom home.
A Grade II-listed, four-bedroom home, in a charming Somerset village, with a two-storey studio that could be converted into a holiday cottage
A modern four-bedroom Victorian home, within walking distance to the high street
A luxury apartment in the Gothic mansion of Wyfold Court in Kingwood, offers six bedrooms spread over three floors and a turret
This school conversion, near Stockwell Tube, oozes New York loft style. The one-bedroom flat features double height ceilings and exposed brick work
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof