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
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

    Guru Careers: Pricing Analyst

    £30 - 35k: Guru Careers: We are seeking a Pricing Analyst to join a leading e-...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE £45K YR1: SThree: At SThree, we like to be dif...

    SThree: Trainee Recruitment Consultant

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

    Guru Careers: C# Project Team Lead

    £55 - 65k (DOE): Guru Careers: A unique opportunity for a permanent C# Develop...

    Day In a Page

    Fifa corruption: The 161-page dossier that exposes the organisation's dark heart

    The 161-page dossier that exposes Fifa's dark heart

    How did a group of corrupt officials turn football’s governing body into what was, in essence, a criminal enterprise? Chris Green and David Connett reveal all
    Mediterranean migrant crisis: 'If Europe thinks bombing boats will stop smuggling, it will not. We will defend ourselves,' says Tripoli PM

    Exclusive interview with Tripoli PM Khalifa al-Ghweil

    'If Europe thinks bombing boats will stop smuggling, it will not. We will defend ourselves'
    Raymond Chandler's Los Angeles: How the author foretold the Californian water crisis

    Raymond Chandler's Los Angeles

    How the author foretold the Californian water crisis
    Chinese artist who posted funny image of President Xi Jinping facing five years in prison as authorities crackdown on dissent in the arts

    Art attack

    Chinese artist who posted funny image of President Xi Jinping facing five years in prison
    Marc Jacobs is putting Cher in the limelight as the face of his latest campaign

    Cher is the new face of Marc Jacobs

    Alexander Fury explains why designers are turning to august stars to front their lines
    Parents of six-year-old who beat leukaemia plan to climb Ben Nevis for cancer charity

    'I'm climbing Ben Nevis for my daughter'

    Karen Attwood's young daughter Yasmin beat cancer. Now her family is about to take on a new challenge - scaling Ben Nevis to help other children
    10 best wedding gift ideas

    It's that time of year again... 10 best wedding gift ideas

    Forget that fancy toaster, we've gone off-list to find memorable gifts that will last a lifetime
    Paul Scholes column: With the Premier League over for another year, here are my end of season awards

    Paul Scholes column

    With the Premier League over for another year, here are my end of season awards
    Heysel disaster 30th anniversary: Liverpool have seen too much tragedy to forget fateful day in Belgium

    Liverpool have seen too much tragedy to forget Heysel

    Thirty years ago, 39 fans waiting to watch a European Cup final died as a result of a fatal cocktail of circumstances. Ian Herbert looks at how a club dealt with this tragedy
    Amir Khan vs Chris Algieri: Khan’s audition for Floyd Mayweather may turn into a no-win situation, says Frank Warren

    Khan’s audition for Mayweather may turn into a no-win situation

    The Bolton fighter could be damned if he dazzles and damned if he doesn’t against Algieri, the man last seen being decked six times by Pacquiao, says Frank Warren
    Blundering Tony Blair quits as Middle East peace envoy – only Israel will miss him

    Blundering Blair quits as Middle East peace envoy – only Israel will miss him

    For Arabs – and for Britons who lost their loved ones in his shambolic war in Iraq – his appointment was an insult, says Robert Fisk
    Fifa corruption arrests: All hail the Feds for riding to football's rescue

    Fifa corruption arrests

    All hail the Feds for riding to football's rescue, says Ian Herbert
    Isis in Syria: The Kurdish enclave still resisting the tyranny of President Assad and militant fighters

    The Kurdish enclave still resisting the tyranny of Assad and Isis

    In Syrian Kurdish cantons along the Turkish border, the progressive aims of the 2011 uprising are being enacted despite the war. Patrick Cockburn returns to Amuda
    How I survived Cambodia's Killing Fields: Acclaimed surgeon SreyRam Kuy celebrates her mother's determination to escape the US

    How I survived Cambodia's Killing Fields

    Acclaimed surgeon SreyRam Kuy celebrates her mother's determination to escape to the US
    Stephen Mangan interview: From posh buffoon to pregnant dad, the actor has quite a range

    How Stephen Mangan got his range

    Posh buffoon, hapless writer, pregnant dad - Mangan is certainly a versatile actor