Question: We're a young family desperate to get on to the property ladder, with £18,000 savings targeted at a £205,000 house. However, all our approaches to lenders for a 2-year fix have just resulted in doors being slammed in our face. Is there any loan we can get with our current deposit, or are we destined to just keep on saving? KM, Devon
Answer: As first-time buyers, you're sadly members of what is fast becoming an endangered species. In September, barely 13,400 first-timers were able to get their hands on a home loan, according to monthly figures from the Council of Mortgage Lenders – less than half the number for the same month a year ago.
More alarmingly, a glance at three-month figures (July to September) for first-timers who did bag a mortgage – a paltry 44,500 – reveals a new low last touched in 1974.
Endangered species tend to be afforded protection, yet, as you've experienced, there's precious little out there to give you a hand, says Andrew Montlake of the broker Cobalt Capital. "Right now, lenders are desperate to avoid the highest risks," he says. "Facing first-timers with small deposits and high loan-to-values (LTVs), who usually stretch themselves to pay a monthly mortgage, it's no surprise that they're asking themselves, 'Why bother?'."
This wouldn't matter too much in a rising market. But sliding house prices – a 14.9 per cent fall since last October, says Halifax – have badly spooked lenders. Throw these tumbling prices into the mix, with their threat of negative equity for new owners, and your first-time buyer status leaves you out in the cold. "Banks and building societies do want to support homeowners," counters Michael Coogan of the CML, "but they have limited funds and are, quite reasonably, taking a prudent approach to risk."
Chances of success may appear slim, but much could work in your favour, says David Hollingworth of the broker London & Country. "If house prices keep falling, and you keep saving, there's a chance you'll be at an LTV of 90 per cent faster than you think."
Since few mortgages are available for anyone with less than a 10 per cent deposit, it's no wonder you met with stony faces. But if you save £20,500, or they accept a lower offer – £180,000, say – then more home loans will open up to you: at a price.
HSBC offer a 2-year fix at 6.44 per cent for a £599 fee, Mr Hollingworth says, or Britannia building society has a 3-year fix for the same rate but no fee. "Sadly, there's a premium to be paid for a fix at this level: you can get a 2-yr fix for less than 5 per cent but they're reserved for those with much lower LTVs of 75 per cent."
One other option: punt a bid for your desired home at £174,999 – the new level at which stamp duty isn't payable. Since September, this tax has been temporarily suspended for properties below £175,000. In this dire climate, the vendor may succumb, saving you £2,050.Reuse content