Mortgage lenders start to say yes again to first-time home buyers

Affordability has improved to become almost twice as good as it was three years ago

things are looking up for anyone hoping to take their first steps on the housing ladder. Despite most potential first-time buyers believing they can't afford to snap up their dream home, evidence from the Halifax published this week suggests that mortgage costs as a proportion of monthly income have shrunk dramatically.

The lender claims that monthly mortgage payments as a percentage of income are nearly half that of the level of 2007. Affordability for first-time buyers reached its worst point in June 2007 when half of a typical new homeowner's disposable income was being swallowed up by mortgage payments. The proportion has now dropped to a much-more manageable 28 per cent.

The reason for the change is because house prices have fallen while interest rates have been stuck at historically low levels for more than 18 months. First-time buyers have also been helped by the last Labour government's changes to stamp duty, raising the threshold to £250,000. It means that 94 per cent of first-time property purchases are now exempt from the tax, which adds 1 per cent to the cost of a home at its lowest level.

But perhaps the biggest barrier to people buying their first home has been lenders' reluctance to hand out mortgages in the last couple of years. Even that is improving, according to Stephen Noakes, the commercial director for mortgages at the Halifax. "Despite perceptions, eight out of 10 first-time buyer mortgages are approved," he says.

However, that doesn't take account of the number of people put off applying for a loan by the fact that, unless they can raise a huge deposit, they're not going to be granted any of the best deals. In the last few months, for instance, the tastiest fixed rates or discounts have only been available to people who can stump up a deposit of at least 25 per cent with the very best deals saved for those with a massive 40 per cent deposit.

But there is some evidence that lenders' meanness is beginning to ease, says Andrew Hagger of "The competition which has driven rates lower in the mainstream mortgage market has started to filter through to first-time buyer deals and even though many of the better rates are reserved for those with at least a 25 per cent stake to put down, we are seeing more choice and some lower pricing at 90 per cent loan to value," he says.

His view is backed up by Melanie Bien, director of mortgage broker Private Finance. "There is more choice of product for those with a 10 per cent deposit than there was a year ago," she reports. However, she warns that borrowers will still have to pay a premium on the rate. "The other problem with high loan to value deals is that the credit scoring is much tougher than for those with a bigger deposit, so many applicants who have had no credit problems in the past, find that they are rejected."

Being rejected for a loan will make it harder to get one elsewhere as the rejection will end up on your credit record, so potential borrowers need to be wary of applying if they believe they may get turned down.

For those who are struggling to raise even a 10 per cent deposit, there are options. "If you can call on the Bank of Mum and Dad for help, the situation is undoubtedly easier," points out Melanie Bien. "Ideally, they will be able to help with the deposit or act as guarantors, which will enable you to take on a bigger loan."

Under Lloyds TSB's Lend a Hand scheme, for instance, the bank will lend up to 95 per cent of the value of the property as long as 25 per cent of the purchase price is provided by the buyer and their parents or family member, with the buyer contributing a minimum of 5 per cent of this.

"Because the bank is in effect only advancing 75 per cent of the value of the property by taking a legal charge over the parent's contribution, their risk is far lower than with a traditional 90 per cent advance and this is reflected in less punitive interest rate," explains Andrew Hagger.

Another option for those struggling to raise cash for a deposit is to think about newly-built homes, where the deposit required is often effectively just 5 per cent. Under house builder Barratts' purchasing schemes, for example, it lends up to 15 per cent of the value of a property in the form of an equity share loan.

The builder says that as well as reducing the amount required upfront, its purchasing schemes can help reduce monthly mortgage repayments because first-time buyers can apply for a lower loan-to-value deal and get better mortgage rates. The company also offers a five year guarantee on fixtures and fittings. "It means that home buyers won't be faced with any hefty maintenance bills – ideal for first-time buyers on a tighter budget," says Gary Ennis, managing director for Barratt Southern Region.

Meanwhile, to help make the home buying process easier, Nationwide has launched a free First Time Buyers' Guide. "We wanted to help first-time buyers by giving them an overview of what they need to know in every day language and to make it available all in one place," says Caroline Hallatt, Nationwide's head of corporate responsibility.

"The guide is fully independent of our products and is designed to help anyone considering buying or renting their first home." Their guide is available free at the Nationwide's website:

'It wasn't much of a problem getting a mortgage'

First-time buyer Simon Acton, 26

Living at home with his parents has allowed Simon Acton to save up enough to put down a 10 per cent deposit on a £97,000 three-bedroomed semi in his home town of Warrington in the North-west. The science teacher plumped for a five-year fixed-rate deal with the Nationwide at 5.9 per cent.

"I spent a long time looking at different options but decided to go for a fixed rate as it means I can budget properly as I know what my monthly mortgage repayments are going to be," he says. "I thought it might be a bit of a problem getting a mortgage but the building society was very helpful and the charge for arranging the loan was just £398, which I expected to be a lot more."

He says his parents didn't charge him for rent, which allowed him to build up reasonable savings, and he also looked at several different deals from lenders. "But staff at the Nationwide took the most trouble explaining my options and the costs of taking out a loan. I was also keen to make sure there were no hidden costs or expensive surprises, other than the arrangement fee," he says.

After looking for some weeks, Simon bought a repossessed property which he had been watching. "I looked at quite a few houses and when I first saw this one it was on the market for £110,000. But over time I noticed it had started to drop in price so I kept a close eye on it. When it reached £100,000 I started making offers and eventually we settled at £97,000," he says. "The property does need a little cosmetic work and some redecoration but I reckon I've got a bargain as a similar house up the road went for £120,000."

Arts and Entertainment
Lena Dunham
booksLena Dunham's memoirs - written at the age of 28 - are honest to the point of making you squirm
Arts and Entertainment
A bit rich: Maggie Smith in Downton Abbey
tvDownton Abbey review: It's six months since we last caught up with the Crawley clan
Frank Lampard and his non-celebration
premier leagueManchester City vs Chelsea match report from the Etihad Stadium
Life and Style
A new app has been launched that enables people to have a cuddle from a stranger
techNew app offers 'PG alternative' to dating services like Tinder
Jacqueline Bisset has claimed that young women today are obsessed with being 'hot', rather than 'charming', 'romantic' or 'beautiful'
Arts and Entertainment
Jake Quickenden sings his heart out in his second audition
tvX Factor: How did the Jakes - and Charlie Martinez - fare?
premier league
Arts and Entertainment
'New Tricks' star Dennis Waterman is departing from the show after he completes filming on two more episodes
tvOnly remaining original cast-member to leave crime series
Mario Balotelli celebrates his first Liverpool goal
premier leagueLiverpool striker expressed his opinion about the 5-3 thriller with Leicester - then this happened
people'I hated him during those times'
Britain's shadow chancellor Ed Balls (L) challenges reporter Rob Merrick for the ball during the Labour Party versus the media soccer match,
peopleReporter left bleeding after tackle from shadow Chancellor in annual political football match
Arts and Entertainment
Female fans want more explicit male sex in Game of Thrones, George R R Martin says
tvSpoiler warning: Star of George RR Martin's hit series says viewers have 'not seen the last' of him/her
Dame Vivienne Westwood has been raging pretty much all of her life
peopleMemoir extracts show iconic designer 'felt pressured' into going out with Sex Pistols manager
Life and Style
fashionAlexander Furyon London Fashion Week Spring/Summer 2015
Arts and Entertainment
Lauryn Hill performing at the O2 Brixton Academy last night
musicSinger was more than 90 minutes late on stage in Brixton show
Rumer was diagnosed with bipolarity, attention deficit hyperactivity disorder and post-traumatic stress disorder: 'I was convinced it was a misdiagnosis'
peopleHer debut album caused her post-traumatic stress - how will she cope as she releases her third record?
people''Women's rights is too often synonymous with man-hating'
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Senior BA - Motor and Home Insurance

    £400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...

    Market Risk & Control Manager

    Up to £100k or £450p/d: Saxton Leigh: My client is a leading commodities tradi...

    SQL Developer - Watford/NW London - £320 - £330 p/d - 6 months

    £320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

    Head of Audit

    To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...

    Day In a Page

    Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

    Despite the result, this is the end of the status quo

    Boyd Tonkin on the fall-out from the Scottish referendum
    Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

    Manolo Blahnik: Flats, Englishness, and Mary Beard

    The shoe designer who has been dubbed 'the patron saint of the stiletto'
    The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

    Scrambled eggs and LSD

    Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
    'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

    'Normcore': Blending in is the new standing out

    Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
    Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

    New leading ladies of dance fight back

    How female vocalists are now writing their own hits
    Mystery of the Ground Zero wedding photo

    A shot in the dark

    Mystery of the wedding photo from Ground Zero
    His life, the universe and everything

    His life, the universe and everything

    New biography sheds light on comic genius of Douglas Adams
    Save us from small screen superheroes

    Save us from small screen superheroes

    Shows like Agents of S.H.I.E.L.D are little more than marketing tools
    Reach for the skies

    Reach for the skies

    From pools to football pitches, rooftop living is looking up
    These are the 12 best hotel spas in the UK

    12 best hotel spas in the UK

    Some hotels go all out on facilities; others stand out for the sheer quality of treatments
    These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

    Widespread fear of Isis is producing strange bedfellows

    Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
    Topshop goes part Athena poster, part last spring Prada

    Topshop goes part Athena poster, part last spring Prada

    Shoppers don't come to Topshop for the unique
    How to make a Lego masterpiece

    How to make a Lego masterpiece

    Toy breaks out of the nursery and heads for the gallery
    Meet the ‘Endies’ – city dwellers who are too poor to have fun

    Meet the ‘Endies’ – city dwellers who are too poor to have fun

    Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
    Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

    Ian Paisley’s decision to make peace with his IRA enemies

    His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam