A lesson in how to buy a home

With loan rates at record lows, graduates can now get on the property ladder. All you need is the right backing, says Christopher Browne
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The Independent Online

Student loans? Mortgages? Young graduates often shrug these off as mere blips on their path to higher things. Then reality strikes. They meet someone on a two- or three-year training course, find they have more than just a vocation in common and want to settle down together. Their next step is to rent or buy a property.

Student loans? Mortgages? Young graduates often shrug these off as mere blips on their path to higher things. Then reality strikes. They meet someone on a two- or three-year training course, find they have more than just a vocation in common and want to settle down together. Their next step is to rent or buy a property.

Talk to the average graduate and he/she will tell you they are much happier finding a place of their own than spending several years house- or flat-sharing with friends with nothing to show for it later on. Renting is also costlier. A 25 per cent hike since the 1988-1993 property recession has pushed monthly rentals 15 to 20 per cent higher than most mortgages, according to research by FPDSavills.

David Hollingworth of L&C Mortgages explains: "A national property obsession and spiralling house prices have inspired graduates to move as quickly as they can after graduation day. They then gain from greater capital growth and a higher selling price when they move on to a bigger place."

But how does the young, educated buyer muster a 10 per cent deposit, as well as all the costs of moving in to a new home? Answer: with great difficulty – unless they have private wealth.

After leaving university, Katy White, 22, joined a teacher-training course in Southampton where she met fellow student Rick Jump. After dating for a year, Jump got a job as a primary school teacher. He and White, now in her final year, decided to buy a home together. "We didn't want to pay the high costs of renting," she says. Instead, they searched estate agents and newspapers for suitable properties.

Disenchantment was setting in when the pair saw a Southampton City Council advert offering £10,000 interest-free loans for first-time buyers. "It was just the luck we needed. We'd been searching for weeks, but all the houses we saw cost more than £90,000, which we couldn't afford," says White.

They applied for the loan and were successful. Three weeks into their second search, the two teachers found a one-bedroom terraced house in Hedgend, a small town near Southampton. "It was exactly what we wanted, only six years old and had all the mod cons," she says. But their happiness was short-lived. The price was £110,000, and though they had almost enough cash for a deposit, Jump's income was too low to lure any lenders. So the pair went to a financial adviser, who told them about a new product.

Known as a Royal Bank of Scotland Guarantor Loan, it meant 30 per cent of the loan was guaranteed by a relative or friend – in this case White's father. "It helped us to get a mortgage for £120,000, the extra £10,000 going on the deposit and our legal and moving fees. My father's guarantee will run for two years and then drop off. By then I'll be working, and we'll be in a stronger financial position," she says.

Several other lenders have found a cure for the "graduation day blues". Through Scottish Widows, former students who took their degrees up to five years ago can get a 102 per cent mortgage with no deposit and a two per cent bonus to help pay for stamp duty, conveyancing, searches and removals. One option is a tracker mortgage at only 3.5 per cent interest for the first six months and five per cent thereafter.

The Halifax does a mix-and-match mortgage to help struggling graduates who have permanent jobs. They can opt for any mortgage – from fixed-rate to APR – and can have other loans at the same time. A spokesman says: "It often helps their case, especially if they have been making regular payments, as it shows they're credit-worthy."

If a graduate has moved on and finished his or her training, Newcastle Building Society has yet another handy pick-me-up: the Professional Mortgage. Any newly qualified accountant, doctor, lawyer, dentist or optometrist can apply. Teachers, sadly, cannot because although their jobs may be stable, they are not currently seen as fast-track enough.

Young professionals earning £15,000 or more can borrow up to four times their income and get an underwritten loan from family or friends to cover the rest of their borrowings. So, a young dentist earning £17,000 could get a £68,000 loan – plus £52,000 guaranteed by a close relative – to buy a £120,000 house. He then qualifies for a five-year, fixed-rate mortgage at 5.99 per cent.

A Newcastle BS spokesman says: "High property prices have made it much harder for newly qualified graduates to buy, not only in the South-east but also in North-east city hot-spots such as Newcastle, Durham and Leeds. We are catering for those on fast-track career paths who will be earning substantially more in four or five year's time."

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