First-time buyers are back in lenders' good books. The Post Office is the latest major lender to target them with a range of tempting mortgages. It has just launched a range of 90 per cent deals, meaning prospective homeowners only need to find a 10 per cent deposit to secure their mortgage. And Yorkshire Building Society has launched a new range of mortgages for first-time buyers with no upfront fees, £500 cashback and loans up to 85 per cent of the value of the property. It's a far cry from the past couple of years when the credit crunch and recession led to many lenders practically closing their doors to all but those who could stump up a massive 40 per cent deposit.
Analysis by moneysupermarket.com shows the number of mortgages available at 85 per cent loan-to-value is at its highest since October 2008, and the number of mortgages available at 90 per cent loan-to-value is at its highest since December 2008. "One of the most telling trends of the past two years has been lenders' near obsession with equity," says Hannah-Mercedes Skenfield, mortgage channel manager at moneysupermarket.com. "Plenty of people can afford mortgage repayments, but struggle to save the many thousands of pounds usually required for a 20 to 30 per cent deposit. This means many people have been needlessly locked out of the mortgage market.
"Perhaps now this will begin to change. For too long, the supply of mortgages to first-time buyers who can only raise a small deposit has been too limited. The launch of new 85 per cent and 90 per cent deals should really help stimulate competition and get this market moving again."
However, the fact that there are more 90 per cent deals around doesn't automatically mean first-time buyers will qualify for them, even with a big enough deposit, warns mortgage broker Andrew Montlake of the Coreco Group. "There are dramatically more mortgages available at higher loan-to-values than there were several months ago, but, while many lenders promote the fact they have 90 per cent loans, the reality is only those without sin can apply."
He advises anyone hoping to be approved for a mortgage to sort out their finances and ensure their credit record is clean. "Make sure all your payments on any loans and credit cards are up to date, check your credit score with a reputable company such as Equifax or Experian, and begin to collate documents such as your last six months' bank statements, last three payslips and P60s together with proof of three years' residency and proof of the deposit," Montlake says. "A well-packaged application with no grey areas or missing questions can make all the difference when applying for a mortgage."
Many first-time buyers report the deposit is the biggest stumbling block to them getting a mortgage, even if they can afford the repayments. Some lenders have tried to come up with solutions, reports David Hollingworth of mortgage brokers London & Country. "Lloyds, for instance, offers a Lend a Hand scheme that will offer a mortgage of up to 95 per cent on the condition that a parent [or other helper] locks away savings equivalent to 20 per cent of the purchase price," he says. "This is a benefit, as the parent [or other helper] keeps the savings in their name, but clearly doesn't circumvent the problem of having the capital."
The use of guarantors remains a key part of the first-time buyer market, he says. "The Mortgage Works – part of Nationwide – has even looked to develop specific guarantor products. Lenders can still consider guarantors, although they will generally want to see evidence that the child will be able to take on the mortgage in their own right within a reasonable time frame: the classic example is a trainee solicitor who has clear expectation of a growing income."
Drew Wotherspoon of John Charcol says: "The best option for those first-timer buyers who simply cannot get a mortgage on their own is still the generosity of their parents, be that in the form of a large deposit, acting as a guarantor on the actual mortgage or as a joint borrower."
If parents refuse or are unable to act as guarantors, another option for first time-buyers is to take advantage of the Government's HomeBuy Scheme. It allows a first-time buyer to purchase between 25 and 75 per cent of a property and pay rent on the remainder. "The big plus point is that you only need a 5 per cent deposit on the 75 per cent, and it means you can access rates from lenders at 75 per cent loan to value," says Wotherspoon. "At present, these are priced far more competitively than higher loan-to-value mortgages."
Leeds Building Society, for instance, has just launched two shared-ownership mortgages, which have been designed to help first-time buyers on to the housing ladder, and are available up to 95 per cent of the borrower's share. "We are all aware of the difficulties facing first-time buyers, but shared-ownership mortgages can help them take that first step," says Martin Richardson of the Leeds. "There's only a small deposit required, which gives them a starting point to staircase up to full home ownership, as their earning potential increases."
Even if you're not planning to buy now, prospective homeowners should start saving, says John Hughes of the Britannia. "Getting in to a regular savings habit is a valuable exercise for first-time buyers as it not only enables them to build up a good deposit, but prepares them for the monthly outgoings which come with a home. We would therefore advise anyone who is thinking of getting on to the property ladder to start setting aside as much as they can afford on a monthly basis."
Meanwhile, things should get even better for first-time buyers, predicts Montlake. "Things are going to become more competitive in the coming months, especially as lenders begin to get more comfortable with house prices. First-timers should then benefit from even more attractive deals."