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; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at

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

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

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Sheridan Maine: Accounts Assistant

    £30,000 Annual: Sheridan Maine: A fantastic opportunity has arisen for a perso...

    Richard Bishop: Accounts Payable Clerk

    £11 - £13 Hourly Rate: Richard Bishop: Are you looking for a purchase ledger r...

    Jemma Gent: Management Accountant

    £250-£300 Day Rate: Jemma Gent: Are you qualified accountant with previous exp...

    Richard Bishop: Accounts Payable Clerk

    £11 - £13 Hourly Rate: Richard Bishop: Are you looking for a purchase ledger r...

    Day In a Page

    No postcode? No vote

    Floating voters

    How living on a houseboat meant I didn't officially 'exist'
    Louis Theroux's affable Englishman routine begins to wear thin

    By Reason of Insanity

    Louis Theroux's affable Englishman routine begins to wear thin
    Power dressing is back – but no shoulderpads!

    Power dressing is back

    But banish all thoughts of Eighties shoulderpads
    Spanish stone-age cave paintings 'under threat' after being re-opened to the public

    Spanish stone-age cave paintings in Altamira 'under threat'

    Caves were re-opened to the public
    'I was the bookies’ favourite to be first to leave the Cabinet'

    Vince Cable interview

    'I was the bookies’ favourite to be first to leave the Cabinet'
    Election 2015: How many of the Government's coalition agreement promises have been kept?

    Promises, promises

    But how many coalition agreement pledges have been kept?
    The Gaza fisherman who built his own reef - and was shot dead there by an Israeli gunboat

    The death of a Gaza fisherman

    He built his own reef, and was fatally shot there by an Israeli gunboat
    Saudi Arabia's airstrikes in Yemen are fuelling the Gulf's fire

    Saudi airstrikes are fuelling the Gulf's fire

    Arab intervention in Yemen risks entrenching Sunni-Shia divide and handing a victory to Isis, says Patrick Cockburn
    Zayn Malik's departure from One Direction shows the perils of fame in the age of social media

    The only direction Zayn could go

    We wince at the anguish of One Direction's fans, but Malik's departure shows the perils of fame in the age of social media
    Young Magician of the Year 2015: Meet the schoolgirl from Newcastle who has her heart set on being the competition's first female winner

    Spells like teen spirit

    A 16-year-old from Newcastle has set her heart on being the first female to win Young Magician of the Year. Jonathan Owen meets her
    Jonathan Anderson: If fashion is a cycle, this young man knows just how to ride it

    If fashion is a cycle, this young man knows just how to ride it

    British designer Jonathan Anderson is putting his stamp on venerable house Loewe
    Number plates scheme could provide a licence to offend in the land of the free

    Licence to offend in the land of the free

    Cash-strapped states have hit on a way of making money out of drivers that may be in collision with the First Amendment, says Rupert Cornwell
    From farm to fork: Meet the Cornish fishermen, vegetable-growers and butchers causing a stir in London's top restaurants

    From farm to fork in Cornwall

    One man is bringing together Cornwall's most accomplished growers, fishermen and butchers with London's best chefs to put the finest, freshest produce on the plates of some of the country’s best restaurants
    Robert Parker interview: The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes

    Robert Parker interview

    The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes
    Don't believe the stereotype - or should you?

    Don't believe the stereotype - or should you?

    We exaggerate regional traits and turn them into jokes - and those on the receiving end are in on it too, says DJ Taylor