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
Sunday 16 August 2009
First-time buyers could be dipping their toes back into the property market, according to home loan website Mortgageforce.co.uk. 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 mortgageforce.co.uk 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."
Derek Pain: I'm cautious, but remain one of the few bulls in the market
Donald MacInnes: Who would want to be a Barbie girl in a non-Barbie world?
Mark Dampier: How to get an income now that savings are past the 'use by' date
Thousands of UK investors could lose out following collapse of Secured Energy Bonds
Bargain Hunter: Fly off for a winter break in France or Portugal for well under £100
- 1 Stephen Fry explains what he would say if he was 'confronted by God'
- 2 Venezuela Expo Tattoo 2015: Extreme body art from 'Vampire Woman' to 109mm earlobes
- 4 Ball pool for adults opens in London
- 5 Canadian woman suing police who locked her in van with sex offender who then raped her
Stephen Fry explains what he would say if he was 'confronted by God'
9 reasons Greece's experiment with the radical left is doomed to failure
Have we reached 'peak food'? Shortages loom as global production rates slow
British grandmother Lindsay Sandiford faces execution by firing squad in Indonesia
Liberal Democrat minister defends comments suggesting immigration causes pub closures
Hard line on immigration could cost Tories the election
iJobs Money & Business
£40000 - £50000 per annum: Recruitment Genius: This is an exciting opportunity...
£30000 - £35000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...
£13000 per annum: Recruitment Genius: This Pension Specialist was established ...
£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...
Day In a Page
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion