New hope for first-timers?

The options for buyers who want to get on the ladder are growing all the time

In his Pre-Budget Report last week, the Chancellor Gordon Brown held out the prospect of government help for first-time buyers.

Proposals on shared equity - where the Government takes a stake in first-time buyers' houses, reducing the funds they need to raise themselves - were fleshed out in the report. By rearranging the Open Market HomeBuy scheme, the Government hopes to bring another 20,000 people within its scope.

But the number who will benefit is still relatively small, at about 40,000 home-buyers - and they will have to meet certain criteria, such as key workers and people who rent through a social landlord.

Action is certainly needed. A shortage of first-time buyers is holding back the housing market as a whole, as other home-owners find it more difficult to sell their properties and move on.

Research by YouGov for the Co-operative Bank found that first-time buyers are waiting longer to get on the housing ladder; about 28 per cent take two years to save a cash reserve for a deposit, and 13 per cent wait as long as three years.

But waiting for government action might not be the best course. The Council of Mortgage Lenders recently revised upwards its housing market forecast. The lenders' body had predicted that prices would be broadly flat between 2005 and 2007. It is now saying that house prices will rise 4 per cent this year, and 2 per cent in 2006 and 2007.

This is far from the double-digit growth of a few years ago, but first-time buyers still risk being squeezed. Unlike existing home-owners, first-time buyers have no equity so do not benefit from price rises.

First-time buyers' deposits are having to rise, in order to keep pace with the higher cost of properties. The YouGov survey found that 10 per cent of first-time buyers had deposits of between £11,000 and £16,000; 20 per cent between £6,000 and £11,000; and 27 per cent between £1,000 and £6,000. But 17 per cent had no deposit at all.

The Open Market HomeBuy scheme works by letting qualified buyers apply for a 75 per cent mortgage. The mortgage lender and the Government each take a 12.5 per cent stake in the property. This is an interest-free loan, but 25 per cent of the sale price, including any gains, goes to the Government and the bank.

This could make it harder for buyers to move up the ladder, as they will have less equity. But the greatest drawback is that relatively few people stand to qualify. "These schemes are usually a long time in coming into operation. You could wait, and then find that you still do not qualify," warns Helen Adams, managing director of the information service, FirstRungNow.

Adams suggests that borrowers who want to move quickly on to the property ladder should look at alternatives already available. Lenders, she suggests, are starting to realise the untapped potential in the first-time buyers' market.

Two options are 100 per cent mortgages, and graduate and professional mortgages, which allow borrowers to take out mortgages for greater sums than normal income multiples allow.

The Co-operative Bank is one of several lenders that have revamped their first-time buyers' loans. The bank has both a fixed and a tracker-rate loan, a 100 per cent mortgage, a graduate mortgage and a mortgage that allows first-time buyers to buy with a guarantor, usually a parent.

David Lowe, mortgage product manager at the Co-operative, says: "Our 100 per cent mortgage has proved very attractive. For people who might think they cannot get in to the housing market at all, this offers them a glimpse of potential."

Borrowing without a deposit does, however, leave home-buyers very exposed to any downturn in the property market. As an alternative, joint ownership of some form is growing in popularity.

One in four first-time buyers now asks a parent for help, Adams says. This, and buying with friends, schemes from developers, and existing social shared ownership programmes, will have to bridge the gap until the Government's plans become reality.

Finacial products from our partners
Property search
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

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

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Ashdown Group: Treasury Assistant - Accounts Assistant - London, Old Street

    £24000 - £26000 per annum + benefits : Ashdown Group: A highly successful, glo...

    Ashdown Group: Business Analyst - Financial Services - City, London

    £50000 - £55000 per annum: Ashdown Group: Business Analyst - Financial Service...

    SThree: Trainee Recruitment Consultant

    £18000 - £23000 per annum + OTE £45K: SThree: At SThree, we like to be differe...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + competitive: SThree: Did you know? SThree is the o...

    Day In a Page

    General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband

    Chuka Umunna: A virus of racism runs through Ukip

    The shadow business secretary on the benefits of immigration, humility – and his leader Ed Miliband
    Yemen crisis: This exotic war will soon become Europe's problem

    Yemen's exotic war will soon affect Europe

    Terrorism and boatloads of desperate migrants will be the outcome of the Saudi air campaign, says Patrick Cockburn
    Marginal Streets project aims to document voters in the run-up to the General Election

    Marginal Streets project documents voters

    Independent photographers Joseph Fox and Orlando Gili are uploading two portraits of constituents to their website for each day of the campaign
    Game of Thrones: Visit the real-life kingdom of Westeros to see where violent history ends and telly tourism begins

    The real-life kingdom of Westeros

    Is there something a little uncomfortable about Game of Thrones shooting in Northern Ireland?
    How to survive a social-media mauling, by the tough women of Twitter

    How to survive a Twitter mauling

    Mary Beard, Caroline Criado-Perez, Louise Mensch, Bunny La Roche and Courtney Barrasford reveal how to trounce the trolls
    Gallipoli centenary: At dawn, the young remember the young who perished in one of the First World War's bloodiest battles

    At dawn, the young remember the young

    A century ago, soldiers of the Empire – many no more than boys – spilt on to Gallipoli’s beaches. On this 100th Anzac Day, there are personal, poetic tributes to their sacrifice
    Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves

    Follow the money as never before

    Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves, reports Rupert Cornwell
    Samuel West interview: The actor and director on austerity, unionisation, and not mentioning his famous parents

    Samuel West interview

    The actor and director on austerity, unionisation, and not mentioning his famous parents
    General Election 2015: Imagine if the leading political parties were fashion labels

    Imagine if the leading political parties were fashion labels

    Fashion editor, Alexander Fury, on what the leaders' appearances tell us about them
    Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

    Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

    The architect of the HeForShe movement and head of UN Women on the world's failure to combat domestic violence
    Public relations as 'art'? Surely not

    Confessions of a former PR man

    The 'art' of public relations is being celebrated by the V&A museum, triggering some happy memories for DJ Taylor
    Bill Granger recipes: Our chef succumbs to his sugar cravings with super-luxurious sweet treats

    Bill Granger's luxurious sweet treats

    Our chef loves to stop for 30 minutes to catch up on the day's gossip, while nibbling on something sweet
    London Marathon 2015: Paula Radcliffe and the mother of all goodbyes

    The mother of all goodbyes

    Paula Radcliffe's farewell to the London Marathon will be a family affair
    Everton vs Manchester United: Steven Naismith demands 'better' if Toffees are to upset the odds against United

    Steven Naismith: 'We know we must do better'

    The Everton forward explains the reasons behind club's decline this season
    Arsenal vs Chelsea: Praise to Arsene Wenger for having the courage of his convictions

    Michael Calvin's Last Word

    Praise to Wenger for having the courage of his convictions