Climbing on the first rung of the ladder

For many first-time buyers, keeping it in the family is the only way they can have their dream home
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Trying to find an affordable home has always been the biggest headache for most young, first-time house buyers and now it looks as if parents are feeling the extra strain too.

Trying to find an affordable home has always been the biggest headache for most young, first-time house buyers and now it looks as if parents are feeling the extra strain too.

A survey this week by Yorkshire Bank shows 57 per cent of the UK's parents are prepared to borrow money or even release equity from their own homes to help their children find the cash to clear out and get their own place. Hardly surprising, when we are in a climate where a house ideal for a first-time buyer can easily top five times average income.

But if you are a first-time buyer and want to avoid getting your parents involved (well, keep them to a minimum) you'll soon find no shortage of lenders and/or schemes to assist you. And you will probably find that a lot of them have neatly shuffled you into some kind of demographic movement.

If you are a doctor, dentist, accountant, solicitor, teacher or vet you might be interested in a Professional Mortgage, by Scottish Widows. This allows buyers to borrow 100 per cent of the valuation or purchase price of the property, whichever is lower. You can also borrow 10 per cent for whatever you want and it has no high loan fee to pay. It all sounds attractive but, of course, you must belong to one of the listed professions to qualify.

If you work in the social services sector, help could come from the Government and its key worker scheme, which gives house-buying assistance to nurses, teachers, social workers, the police or those in the fire services.

Working in one of these areas could make you eligible for a starter homes initiative. Options here vary from interest- free loans payable when the property is sold, a lump sum, again payable if the property is sold, or the chance to join a shared ownership scheme.

And if you graduated more than seven years ago, you can apply for a graduate mortgage with Scottish Widows. It is a seductive-sounding deal with a 102 per cent borrowing limit on a property's value, with or without a guarantor.

But to make the most of this deal's borrowing capacity, you will still need your family to act as guarantor for you. If you want to borrow more than the standard 3.5 times income, your parents will be asked to guarantee the excess, known as a top slice guarantee.

So, if you earn £30,000 a year, Scottish Widows will normally lend you up to £105,000 without parental help. But if you need, say, £140,000 for your first home Scottish Widows will call on your folks to guarantee the additional £35,000, known as a top-slice guarantee.

Financial, practical and emotional help from parents is often gratefully received by first-time buyers, but there is a danger that schemes like this are merely encouraging first-timers to shirk from the real figures involved, temporarily, if not permanently. After all, who really pays their parents back?

Murdo McHardy, senior manager, business development at Scottish Widows, disagrees. He says: "The guarantor allows graduates to buy their first home earlier than may normally have been possible, and is seen as an assistance rather than a fall-back position."

Nevertheless, that guarantor has to be solvent and willing to be considered, and it can be a strain for first-time buyers to know their parents are keeping them afloat. And the parents are effectively being asked to disagree with the lender about the borrower's riskiness.

Despite these concerns, all these initiatives have been very popular. And with figures from the Joseph Rowntree Foundation showing the average price of a four- or five-bedroom house in Tower Hamlets costs £233,415 - five-and-a-quarter times the local average income of £44,260 - that is not surprising. So although it is good to see the private and public sectors stepping in to aid first-time buyers, many will still get left out.

One way of cutting costs is by avoiding stamp duty. It does not apply to properties of £60,000 or less, and even up to £150,000 in regions where the Government wants more people to buy their homes. Log on to www.inlandrevenue.co.uk to find if your postcode has been earmarked.

Some housebuilders will pay your stamp duty, deposit or even your mortgage for the first year if you are a first-time buyer. Most new-build homes usually include free carpets, curtains and landscaping.

You can maximise a newly built home's potential even more if you snap up a property off-plan, before it is finished. It sounds daunting but there will be plans of what the end result will look like and it can lead to big savings. If you are nervous about a builder you can always check them up on the National House Building Council website, www.nhbc.co.uk.

And while nearly everyone has heard of gazumping - being left stranded as someone tops your offer - not many first-timers know about gazundering. If you reckon the property you are just about to buy is overpriced, come back with a lower bid: houses are normally priced at much higher than they are worth to take allow for wrangling.

But Elliot Nathan, senior technical underwriter at the mortgage broker The MarketPlace (www.marketplace.co.uk) warns: "They might not always fall for it. Go in at the price you are prepared to pay."

Lastly, if you have a spare room then look up the Government's rent-a-room scheme, which lets you rent out a room for up to £4,250 a year tax-free. You can add your projected rental income to your salary when applying for a mortgage through The MarketPlace. If you do not mind the thought of a lodger then this could be a good choice.

David Bitner, technical manager at The MarketPlace says: "Adding a few thousand pounds to the amount that can be borrowed can make all the difference for first-time buyers, and gives borrowers the chance to upgrade to a nicer area, or even get a garden."

Nicolette Loizou is the author of The Rough Guide to Buying Your First Home, in asociation with Abbey National.

Checklist

PARENTS

They may be able to lend, or even give, the money for a deposit and keep your mortgage down. Or you might persuade them to guarantee a bigger mortgage.

SITES

Where new homes are going up, a builder will often pay your deposit or the first year's mortgage payments to clinch a sale. Many offer attractive interest rates, cashbacks, free fixtures and fittings and will pay the stamp duty.

MORTGAGES

Northern Rock, NatWest, Bank of Scotland, Royal Bank of Scotland and Yorkshire building society lend first-timers 100 per cent mortgages. You may pay higher interest.

LENDERS

Shop for lenders with the highest income multiples. Although 3.5 times annual income is a yardstick, some lenders will offer more, particularly if you have good career prospects.

INSURANCE

Avoid mortgage indemnity guarantee insurance. Some borrowers say it protects them against defaults. But if you say no, they may relent.

FRIENDS

Be sure you know your friends enough to rely on. The borrowers are jointly liable for the payments, which means if one walks away the others are left with the debt. Draw up a strong legal contract.

SHARING

You share the cost with a housing association. You pay half the cost and the association pays the rest. You pay rent on the association half, but take on more and more of the mortgage as your income rises over the years, until you own the lot.

'My parents helped me with the mortgage'

Karen Duthie is among the first-time buyers who made the most of her parents' help. Ms Duthie, 22, has just bought a £105,000 three-bedroom semi- detached house in Altrincham, Cheshire, with her 27-year-old fiancé, Chris Adams.

Ms Duthie, a sports sponsorship consultant, says: "My parents volunteered to help. They paid 10 per cent of the asking price and helped with the deposit."

Crucially, her parents' help meant Ms Duthie was able to secure a mortgage for 94 per cent of the property's value. But this does not mean she has done everything by the first time buyer's cautious book. She says: "We put an offer on this house before I'd even looked around, although my partner and his parents did go and have a look round before I'd seen it."

Ms Duthie has no regrets over her speedy response. Her advice to any hopeful first time buyer is: "Go with your gut feeling. If you ponder about the decision you might just lose your first preference." As if to drive the point home even more in today's extremely competitive housing market she adds: "Ours was on the market for just five hours. It was difficult looking for a place as the market is so fast and furious. Every time we looked at a house we liked it disappeared."

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