First-time buyers struggling to secure a mortgage will be hoping for more support from the Government, such as loosening lending rules. Moneyfactscompare.co.uk explores the latest options for buyers.
- The Chancellor has called for the Financial Conduct Authority (FCA) to relax affordability rules, to support first-time buyers and encourage UK growth. Loan-to-Income (LTI) ratios are under debate.
- According to a study from Barclays Bank, the main barriers to homeownership are high prices (40%) and the cost of a deposit (37%).
- More adults in their 20s and 30s are living with their parents. According to the Institute for Fiscal Studies (IFS), the proportion has risen by over a third over the past two decades.
- There are roughly 400 deals available to borrowers between 95% to 100% loan-to-value (LTV), according to the latest Moneyfacts data.
Rachel Springall, Finance Expert at Moneyfactscompare.co.uk, said:
“First-time buyers are the lifeblood of the mortgage market, but it is an excruciating situation for them to secure a mortgage amid a short supply of affordable housing. There will be many reliant on the ‘Bank of Mum and Dad’ to help them get their foot onto the property ladder, such as with a guarantor mortgage. There are even options for borrowers to add their family or friends onto their mortgage to borrow more, but these pose a risk to anyone on the application should the homeowner default on their mortgage.
“While there are Government schemes available designed to help borrowers buy their first home, there is so much more room for improvement when it comes to product innovation from lenders. Any innovation in the market for first-time buyers should be celebrated, such as the Track Record Mortgage from Skipton Building Society whereby rent payments are used to work out how much someone can borrow. Borrowers weighing up their options would be wise to seek independent advice to know the implications of any mortgage, and secure one based on the best overall true cost, considering the rate, fees and incentives.
“Whether lending rules should loosen to boost growth is up for debate. As has been the case for the past 10 years, regulatory recommendations stipulate loan-to-income ratios of 4.5 or more do not exceed 15% of a lender’s new lending. These then pose challenges for lenders who may wish to leave a buffer to not exceed this threshold during any calendar year. Those that do may have no choice but to change their requirements or withdraw deals from sale. This has been proven this week by Nationwide Building Society, which has increased its minimum income requirement for sole applicants to £40,000 for its Helping Hand mortgage, aiming to remain within the regulatory LTI limit. Clearly there are desires for loosening LTI rules, but this must be executed carefully to ensure borrowers don’t set themselves up for a fall later down the line and lenders don’t have to suddenly change their rules overnight. House prices can rise in the years ahead, but they can also plummet. The latter could be a disaster for borrowers with little equity in their homes from borrowing at the highest ends of the loan-to-value spectrum.”
A selection of mortgages and schemes designed to support first-time buyers:
Barclays Bank has this week introduced ‘Mortgage Boost’ to residential and buy-to-let deals, whereby first-time buyers and existing homeowners can add another individual to an application, to increase the amount they can borrow. Anyone on the application is legally responsible for the mortgage but the helper won’t own the property or be named on the title deeds. Barclays Bank still offers a guarantor ‘Family Springboard Mortgage’ whereby helpers can deposit a lump sum (10% of the amount borrowed) for five years to aid a first-time buyer to secure a mortgage, which is returned to the depositor with interest. Five-year fixed priced at 5.52% at 95% LTV and 5.76% at 100% LTV, up to £500,000.
Halifax offers a ‘Family Boost Mortgage’ whereby a guarantor can deposit a lump sum (10% of the amount borrowed) for three years into a fixed term savings account to help a borrower secure a mortgage, which is returned to the depositor with interest. However, the borrower or helper must have a Reward or Ultimate Reward Current Account with Halifax. Three-year fixed priced at 5.05% and buyers can borrow 95% to 100% of the agreed purchase price, up to £500,000.
Lloyds Bank offers a Lend a Hand Mortgage whereby a guarantor can deposit a lump sum (10% of the amount borrowed) for three years into a fixed term savings account to help a borrower secure a mortgage, which is returned to the depositor with interest. However, this has a limited distribution.
First-time buyers who need assistance to secure a mortgage will find several building societies offer Joint Borrower Sole Proprietor (JBSP) mortgages to first-time buyers, including Buckinghamshire Building Society, Family Building Society, Hinckley & Rugby Building Society, Loughborough Building Society, Newcastle Building Society, Principality Building Society, Saffron Building Society, The Stratford Building Society and Vernon Building Society. There are even deals designed to ‘Buy for University’ such as those from Bath Building Society, Loughborough Building Society and Vernon Building Society.
There are also lenders offering higher Loan-to-Income (LTI) ratios, such as Nationwide Building Society, available through its Helping Hand mortgage which allows first-time buyers to borrow up to six times their income.
First-time buyers should also be aware of other schemes designed to help them get on to the property ladder, which include the First Homes scheme and Help to Buy Mortgage guarantee scheme. Borrowers could also consider using a Lifetime ISA if it suits their circumstances, as the Government will add a 25% bonus to their savings.
