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."
How to get fit in minutes
Debt in Britain: Numbers seeking help on how to cope with mounting bills goes up by more than half in three years
Bargain Hunter: BT improves its mobile reception with 'incredibly competitive' deals
Have a happy new financial year
Simon Read: 'It went below the radar but you could be eligible for a tax break on your savings'
- 1 Katie Hopkins attacked me on Twitter — so I reported her to the police for inciting racial hatred
- 2 Replica Back to the Future Hoverboard released
- 3 Gamers confess the worst things they've done in The Sims
- 4 Dylan Moran on quitting smoking, being about as sexy as the Pope and why comedy panel programmes are 'c*ck shows'
- 5 Modern society encapsulated in five seconds
Ukip supporters are 55 or older, white and socially conservative, finds British Social Attitudes Report
Street preacher quoting from the Bible fined for calling homosexuality an 'abomination'
Jeremy Clarkson sacked live: Alan Yentob 'wouldn't rule out' ex Top Gear host's BBC return
Woman filmed launching racist tirade against men on the Tube for speaking in 'own lingo'
The West has it totally wrong on Lee Kuan Yew
David Cameron calls Labour 'hopeless, sneering socialists' while announcing 7-day NHS plans
iJobs Money & Business
£30,000 Annual: Sheridan Maine: A fantastic opportunity has arisen for a perso...
£11 - £13 Hourly Rate: Richard Bishop: Are you looking for a purchase ledger r...
£250-£300 Day Rate: Jemma Gent: Are you qualified accountant with previous exp...
£11 - £13 Hourly Rate: Richard Bishop: Are you looking for a purchase ledger r...
Day In a Page
This four-bedroom detached home comes with grounds that span to approximately 2.5 acres, as well as two large patio areas and a double garage.
This four-bedroom cottage is a Grade II-listed town house, well-located for the thriving market town of Nailsworth.
A four-bedroom apartment on the ground floor of a stunning period property in North Yorkshire, with two kitchens and a large south-west facing garden.
This high-spec two-bedroom home is part of a smart collection of new flats at Beaufort Park and has a large decked balcony that's perfect for summer drinks.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Overlooking a golf course, this six-bedroom Edwardian detached home spans four storeys and retains many period features including the original, operational servants' bells...
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
In a Grade II-listed manor just outside of Bath, this three-bedroom home is arranged on two floors with a skylight in a vaulted roof line.
Open the living room's bi-fold wooden doors to reveal a retro-style kitchen, and a conservatory leading to a paved garden at this three-bedroom home.
A Grade II-listed, four-bedroom home, in a charming Somerset village, with a two-storey studio that could be converted into a holiday cottage
A modern four-bedroom Victorian home, within walking distance to the high street
A luxury apartment in the Gothic mansion of Wyfold Court in Kingwood, offers six bedrooms spread over three floors and a turret
This school conversion, near Stockwell Tube, oozes New York loft style. The one-bedroom flat features double height ceilings and exposed brick work
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool
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 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
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
A boutique mews house, set around a central courtyard, with three bedrooms and a private roof terrace
A four-bedroom farm-conversion with three bathrooms and two reception rooms
A two-bedroom detached house with ensuite bathrooms and a sun-drenched decked terrace, £750,000
A modern and spacious two-bedroom, penthouse flat with two bathrooms in a prestigious development
A beautifully renovated five-bedroom terrace with three reception rooms and a courtyard garden, £700,000
A four-bedroom period house which has been extended to provide almost 2,500sq ft of living space, £675,000
A pretty three-bedroom Georgian home with a 22ft drawing room and a master suite with a balcony, £525,000
A substanstial family home with five bedrooms and landscaped gardens in the much sought-after Branksome Park area
A well-presented three-bedroom house with front and rear gardens, close to White City station, £475,000
A handsome five-bedroom house in a sought-after location close to the city centre
A five-bedroom country home with valley views, equestrian stables and 27 acres of land, £725,000
A six-bedroom farm house with separate, detached cottages and 371 acres of land
A two-bedroom cottage with parquet floors, chunky beams and an open fireplace
A three-bedrrom flat with 2,733sq feet of living space, a beautiful private garden and 15 acres of communal grounds
A four-bedroom chalet bungalow with three bathrooms and a spacious garden, £525,000