First Time Buyer Mortgages

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By no stretch of the imagination, 2009 is a difficult year for those looking for first time buyer mortgages. The housing market is seeing a downturn making it a difficult decision to purchase as prices may fall much further. The fallout of the credit crunch has seen mortgage deals disappear and the requirement for much higher deposits.

As a first time buyer there are steps that can be taken to that will help the process of becoming a new homeowner and move onto the property ladder. Once on the ladder as a first time buyer, mortgages, remortgaging, and the whole process of moving should be that much easier.  

Dealing with deposits for first time buyer mortgages  

This may be obvious but in today's market there are no first time buyer mortgages at 100% loan-to-value (LTV) any more. Not only are the banks not taking the risk on such deals but the Financial Services Authority (FSA) may be introducing an actual restriction on these. It is considered high LTV deals are partly responsible for the over inflation of house prices, which of course then resulted in pricing out the first time buyer. Mortgages now require a deposit of at least 5% which may be difficult for many to achieve but for the sake of the whole market is a necessity. A property priced at £120,000 will require a deposit of at least £6,000 to be found by the first time buyer. 

In some case this can be almost impossible especially if the potential buyers are caught in an expensive rental market. There are potentially 3 ways the first time buyer can help themselves onto the property ladder.

1. Borrow the deposit, or part of the deposit - not from a lending institution or as credit because this will be expensive. Perhaps there are family members or close friends that can club together to lend the balance of the deposit required. There has to be the trust and a realistic framework for repaying the loan but this can be a very effective way of helping the first time buyer. Having a higher deposit increases the available deals that have better rates and maybe lower fees, giving a broader selection to choose which mortgage deal to go for.
2. Shared ownership - a popular method of securing a first property is to opt for a shared ownership property. This is where the first time buyer opts to buy a 25%, 50% or 75% share in the property and pays a small rent on the portion not purchased. As a rule of thumb a 50% share property would cost around two-thirds of what a full mortgage would cost if the property was purchased in its entirety.  The real good news here is that in many cases very little or no deposit is required for this type of scheme. Usually a local housing association offers these schemes.
3. Guarantor mortgage -  A guarantor mortgage is a type of mortgage where a close relative acts as a guarantor and their income is taken into consideration. This may mean that a better deal may be possible and a higher loan value may be achieved.  If the first time buyer earns say £20,000 per annum and they are interested in a property that is £100,000 the lender may only be willing to lend 3.5 times the salary - £70,000, which leaves a shortfall of £30,000. A guarantor mortgage may be suitable if the guarantor can meet the repayments of the entire £100,000 mortgage and not the shortfall, as it can act as a form of 100% mortgage.

So there are still options out there for the first time buyer. Mortgages are difficult to come by but with the right planning, the right advice and maybe some help from the family it is possible to get a foothold onto the property ladder. There may be legislation on the cards to tighten up the lending criteria for all borrowers, which will be aimed at protecting all of us and reducing the risk of another boom and bust, but looking at all the possibilities with the help of an IFA or mortgage broker may uncover some golden opportunities.

Mike Edwards is the founder of Mortgage Deals Help which aims to provide the UK market with up to date unbiased information relating to all aspects of the mortgage market, making the decision as to which mortgage to go for that little bit easier.

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