The 90% loan is back, but that doesn't mean first timers can get one

The good news is prices are down. The bad is that finance is still tough to get. Alessia Horwich and Julian Knight advise on what options are available

First-time buyers could be dipping their toes back into the property market, according to home loan website The proportion of total enquires about setting up a new mortgage coming from first-time buyers rose from 9 per cent in June to 20 per cent in July, it says. And the property market needs first-time buyers badly as they represent new blood; without them, eventually, everything comes to a standstill.

It's not hard to see why in Britain's property-obsessed culture, first-timers are tempted once again. After a property depression lasting nearly two years, prices are looking a little more realistic and affordable to first-timers.

The average house price for first-time buyers has fallen 16.5 per cent since this time last year, according to the Halifax, making the market more accessible to younger buyers. Lenders have also cautiously reintroduced the 90 per cent loan-to-value (LTV) mortgage. However, while there may be an increase in the number of 90 per cent deals available, not everyone has access to one. "It is definitely not easy to get a 90 per cent deal," says Ray Boulger, a senior technical director at brokers John Charcol. "Lenders' criteria are tight for everybody and even a minor indiscretion like a late credit card payment can mean you are turned down, regardless of deposit size."

The credit scores required to obtain a 90 per cent LTV deal are high. It is here that first-time buyers will often lose out, not because they have black marks on their credit ratings, but because they have little credit history to speak of, Mr Boulger says. "The credit scoring system works on the opposite way to the legal system; you are guilty until you have proved you are able to handle credit." Younger buyers who have not borrowed much on either credit cards or personal loans, and who also may not have been registered on the electoral role for long at one address, are an unknown quantity to lenders and therefore too risky to lend to.

Because of the new stringency regarding credit records, over 50 per cent of first-time buyers are being rejected for mortgage finance. Those who are being accepted pay for the privilege. Katie Tucker from says: "For a 90 per cent deal, you are looking at an average rate of 7 per cent. If you go directly to the lender you can generally better this by 1 or 2 per cent but that's as low as it will go." Mortgage deals currently topping the best buy tables for lower LTVs are all around the 4 per cent mark; it's considerably cheaper the bigger the deposit.

If you don't have a big deposit, some banks have come up with solutions to enable you to get finance. Lloyds' Lend a Hand mortgage requires the borrower to have at least a 5 per cent deposit. Lloyds will lend up to 75 per cent of the property value on a fixed rate for three years, paying an interest rate of between 4.99 per cent and 5.69 per cent depending on the size of the fee. The remaining amount must be covered by a third party (someone who wants to help, usually a parent) depositing 20 per cent of the property value in savings with Lloyds for the duration of the fixed-rate period. For first-time buyers, this is an opportunity to get money they would otherwise be unable to borrow. In addition, your credit score doesn't have to be as pristine because the risk is calculated on the basis of a 75 per cent LTV mortgage and not the full 95 per cent you are really receiving. However, if you don't happen to know someone with a large amount of cash lying around, this mortgage is no good.

Perhaps more accessible are the schemes in which banks will lend at higher LTVs as long as they can sign on either parents, or anyone else with an income large enough, to cover the mortgage repayments as guarantors. The disadvantage of this arrangement is that the credit score for the mortgage will still be based on the first-time buyer and so the interest rate will be higher. However, you can do a joint application and put down the guarantor as the first applicant. This way, each owner can specify how much of the property they own, so if the guarantor is assigned 1 per cent of the property, their credit rating is still taken into account but it is unlikely they will be liable for capital gains tax when it comes to selling and the buyer will be exempt as the property will be their principal residence.

Other options include shared equity schemes whereby a developer will lend the buyer up to 30 per cent of the property value as a deposit, and upon resale receives the same proportion of any profits. Then there are government schemes such as New Build Homebuy, which allows you to buy a proportion of a property at a lower price, thus requiring a smaller loan, and rent the remaining part of the property.

HomeBuy Direct offers an equity loan of up to 30 per cent of the property value at 0 per cent interest for five years. However, this scheme, aimed to assist 18,000 people this year, is badly underperforming partly due to its restrictive nature. Recent reports suggest the take-up of the scheme is in the hundreds rather than the thousands. Unlike the popular MyChoiceHomeBuy scheme that closed in June and was open to all kinds of property, this new programme is available only to those buying new-build properties (or those that have been completely renovated).

"If the Government is serious about kick-starting things," says Michael O'Flynn, director of FindaProperty. com, "it must find a way to relaunch or replace MyChoiceHomeBuy as soon as possible. The market is tough enough without restricting first-time buyers to new homes, of which there may not be any suitable in their area."

A 'yes' in principle turned out to be a 'maybe not' in practice

Jane Davies, 32, bought her first property, a two-bed flat in Hove, Sussex, in June 2009 for £135,000 but it was a real fight to secure the finance.

Jane had a 10 per cent deposit, so before finding the property, she made enquiries directly with several banks and building societies and was given the green light for several 90 per cent LTV deals.

However, once she had made an offer, she had difficulties getting a loan.

"In principle, people had said they would lend to me. My credit score was fairly good. I was on the electoral roll at the property I was renting and although I don't have any personal loans, I do have credit cards I use regularly for expenses. However, in March, when I was trying to get the mortgage, everything seemed to be changing so fast and lenders kept going back on what they'd previously said.

"Most lenders encouraged me to find the extra 5 per cent to push my LTV down to 85 per cent, but the thought of a second loan was quite scary and I didn't want to borrow the money from family."

Jane was forced to abandon a search for the best deal, and simply tried to secure the 90 per cent finance from any lender.

"I spoke to Cheltenham & Gloucester, who agreed to lend at 90 per cent LTV at a rate of 6.59 per cent fixed for five years. The fee for the mortgage was £999 and it all works out to about £780 per month. With my lodger's contribution, I pay less now on a two bed flat I own than on the one-bed I rented."

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

Arts and Entertainment
Eye of the beholder? 'Concrete lasagne' Preston bus station
architectureWhich monstrosities should be nominated for the Dead Prize?
Lizards, such as Iguanas (pictured), have a unique pattern of tissue growth
Anna Nicole Smith died of an accidental overdose in 2007
Life and Style
food + drink
Arts and Entertainment
'The Great British Bake Off' showcases food at its most sumptuous
tvReview: Bread-making skills of the Bake Off hopefuls put to the test
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

    Quantitative Analyst (Financial Services, Graduate, SQL, VBA)

    £45000 per annum: Harrington Starr: Quantitative Analyst (Financial Services, ...

    Application Support Engineer (C++, .NET, VB, Perl, Bash, SQL)

    Negotiable: Harrington Starr: Application Support Engineer (C++, .NET, VB, Per...

    AIFMD Business Analyst / Consultant - Investment Management

    £450 - £600 per day: Harrington Starr: AIFMD Business Analyst / Consultant - I...

    Business Analyst Solvency II SME (Pillar 1, 2 & 3) Insurance

    £450 - £600 per day: Harrington Starr: Business Analyst Solvency II SME (Pilla...

    Day In a Page

    Middle East crisis: We know all too much about the cruelty of Isis – but all too little about who they are

    We know all too much about the cruelty of Isis – but all too little about who they are

    Now Obama has seen the next US reporter to be threatened with beheading, will he blink, asks Robert Fisk
    Neanderthals lived alongside humans for centuries, latest study shows

    Final resting place of our Neanderthal neighbours revealed

    Bones dated to 40,000 years ago show species may have died out in Belgium species co-existed
    Scottish independence: The new Scots who hold fate of the UK in their hands

    The new Scots who hold fate of the UK in their hands

    Scotland’s immigrants are as passionate about the future of their adopted nation as anyone else
    Britain's ugliest buildings: Which monstrosities should be nominated for the Dead Prize?

    Blight club: Britain's ugliest buildings

    Following the architect Cameron Sinclair's introduction of the Dead Prize, an award for ugly buildings, John Rentoul reflects on some of the biggest blots on the UK landscape
    eBay's enduring appeal: Online auction site is still the UK's most popular e-commerce retailer

    eBay's enduring appeal

    The online auction site is still the UK's most popular e-commerce site
    Culture Minister Ed Vaizey: ‘lack of ethnic minority and black faces on TV is weird’

    'Lack of ethnic minority and black faces on TV is weird'

    Culture Minister Ed Vaizey calls for immediate action to address the problem
    Artist Olafur Eliasson's latest large-scale works are inspired by the paintings of JMW Turner

    Magic circles: Artist Olafur Eliasson

    Eliasson's works will go alongside a new exhibition of JMW Turner at Tate Britain. He tells Jay Merrick why the paintings of his hero are ripe for reinvention
    Josephine Dickinson: 'A cochlear implant helped me to discover a new world of sound'

    Josephine Dickinson: 'How I discovered a new world of sound'

    After going deaf as a child, musician and poet Josephine Dickinson made do with a hearing aid for five decades. Then she had a cochlear implant - and everything changed
    Greggs Google fail: Was the bakery's response to its logo mishap a stroke of marketing genius?

    Greggs gives lesson in crisis management

    After a mishap with their logo, high street staple Greggs went viral this week. But, as Simon Usborne discovers, their social media response was anything but half baked
    Matthew McConaughey has been singing the praises of bumbags (shame he doesn't know how to wear one)

    Matthew McConaughey sings the praises of bumbags

    Shame he doesn't know how to wear one. Harriet Walker explains the dos and don'ts of fanny packs
    7 best quadcopters and drones

    Flying fun: 7 best quadcopters and drones

    From state of the art devices with stabilised cameras to mini gadgets that can soar around the home, we take some flying objects for a spin
    Joey Barton: ‘I’ve been guilty of getting a bit irate’

    Joey Barton: ‘I’ve been guilty of getting a bit irate’

    The midfielder returned to the Premier League after two years last weekend. The controversial character had much to discuss after his first game back
    Andy Murray: I quit while I’m ahead too often

    Andy Murray: I quit while I’m ahead too often

    British No 1 knows his consistency as well as his fitness needs working on as he prepares for the US Open after a ‘very, very up and down’ year
    Ferguson: In the heartlands of America, a descent into madness

    A descent into madness in America's heartlands

    David Usborne arrived in Ferguson, Missouri to be greeted by a scene more redolent of Gaza and Afghanistan
    BBC’s filming of raid at Sir Cliff’s home ‘may be result of corruption’

    BBC faces corruption allegation over its Sir Cliff police raid coverage

    Reporter’s relationship with police under scrutiny as DG is summoned by MPs to explain extensive live broadcast of swoop on singer’s home