It looks like an impossible task. The average price of a home across the UK is
£161,000, according to the property research group Hometrack. To purchase a
property at that price you would usually need a deposit of £16,000 and an
income of £50,000. Those figures are simply out of reach for many, but
prospective first-time buyers should not despair. It is no longer necessary
to be able to stump up the traditional 10 per cent deposit and to borrow
three times your income. “Lenders have realised how tough times are for
first-time buyers and have responded with some good, competitive and
innovative schemes,” says Nick Gardner, of Chase de Vere Mortgage
Management. “There is a huge choice of products to suit just about every
position that a first-time buyer might find themselves in.” Whether you have
a high income but no deposit, a modest deposit but a terrible wage, or even
no deposit and a low salary, there are a number of tactics you can try as
you make your first foray into the property market.
ASK YOUR PARENTS FOR HELP
Even if your parents are not rich or generous enough to give you (or lend you)
a deposit, there are ways in which they can help you to buy your first home.
By asking your parents to guarantee your mortgage, you will be able to
borrow more than you usually would. In most cases, guarantor loans allow
your parents to guarantee either all or a part of the mortgage debt. For
example, you might earn £25,000 and have your eye on a property that costs
£145,000. Even if you have the 10 per cent deposit, you would need to borrow
£130,500, but most lenders will offer you no more than £87,500, leaving you
£43,500 short. Your parents could step in, agreeing to guarantee the
remainder of the loan, although you would have to work out a way to meet the
repayments. Both you and your parents need to consider the implications very
carefully: take advice before you proceed.
Good for: Anyone with rich parents, or at least parents who have paid
off their own mortgage.
BUY WITH FRIENDS
You rent together, so why not buy together? For lots of reasons, actually. If
you are renting and you fall out, or one of you decides to go travelling or
get married, all you need to do is find a new flatmate. If you have bought a
property together, you will either have to buy out the leaving party, or
sell the property altogether. On the plus side, pooling your savings will
help you to raise a larger deposit, while combining your incomes will give
you greater borrowing power. How much borrowing power depends on the lender:
most will lend 2.5 times your joint incomes, though it may be possible to
borrow up to four times’ joint income if you go through a broker. Buying a
property together is a huge commitment: you should ask a lawyer to draw up
an agreement that specifies what happens should one person wish to sell or
leave the house. Or you could consider Britannia’s “share to buy” mortgage
(telephone 0800 0131140), which combines a home loan with a free legal
agreement designed for people purchasing a house with friends or family.
Good for: People with very close (and preferably well-paid) friends.
BORROW THE FULL PRICE OF THE HOUSE
You can borrow 100 per cent, or in some cases even more, of the price of your
home if you have been unable to raise a deposit. Northern Rock (0845
6050500), for example, will lend you 125 per cent of the value of your home,
of which 95 per cent is a secured loan and the remaining 30 per cent is an
unsecured cash reserve.
Although taking a 100 per cent loan means that you need no deposit, it raises
its own problems. The first is that it puts you at greater risk of negative
equity: all you need is for house prices to fall very slightly and you will
find that your debt exceeds the value of your home. It means that your
mortgage repayments are likely to be relatively high and you may be asked to
pay a mortgage indemnity guarantee, or higher lending charge, which protects
the lender in the case you that you default.
Good for: Anyone who has a decent income but absolutely no savings.
BORROW MORE THAN THREE TIMES INCOME
Many lenders will now stretch to four times single income, and it may be
possible to borrow an even higher multiple of your income. “An increasing
number of lenders are moving away from strict income multiples towards
affordability calculations,” says Melanie Bien, of Savills Private Finance.
“Typically, you can get the equivalent of five times income if you use a
lender that goes for affordability.” Affordability calculations take into
account not just your income but your overall financial situation. The
problem with borrowing more than three times your income is that your
repayments will be high, leaving you vulnerable to changes in your situation
or increases in interest rates.
Good for: Those with great career prospects.
SHARED EQUITY
The Government’s new shared equity scheme will be introduced in October, but
it is possible to purchase a property on a shared-ownership basis already.
Current schemes, offered by housing associations and not-for-profit groups,
allow you to purchase between 25 per cent and 75 per cent of a property, and
to pay a subsidised rent on the remaining share, which is held by the
housing association. You will have an option to buy the rest of the property
at a later date.
The Government’s proposed scheme will work slightly differently. You will
raise a mortgage for 75 per cent of the property’s value, with the mortgage
lender providing a 12.5 per cent “top-up” loan and the Government giving a
loan for the remaining 12.5 per cent. As and when they can, the buyer would
then be able to move towards full ownership of the property. If the property
is sold, profits will be split between the buyer and the other parties. The
good news is that, if the house sells at a loss, the Government will take
the first hit against its stake.
The scheme, to be introduced on a pilot basis in October and running for at
least two years, will work in conjunction with big lenders: HBOS, Nationwide
and Yorkshire Building Society have already signed up. As is usual with
government-sponsored schemes, the devil may well lurk in the detail. It has
not yet been made clear whether rent will be payable on the part of the
property that the buyer does not own.
Moreover, brokers say that it is likely that the mortgage rates will be higher
than those offered on other mortgages, and that this could prove a deterrent
for first-time buyers.
Good for: Buyers living in council housing or who are on local
authority waiting lists.
Chase de Vere Mortgage Management: 0800 3585068
Savills Private Finance: 0870 9007762
CASE STUDY: BROTHERLY LOVE
MARY BOLGER had been dreaming of buying her first home for a few years. But it
was not until her twin brother, Gerry, offered to remortgage his home and
lend her £15,000 that she was able to take her first step on the property
ladder. Mary, 34, who works as a PA in the City, has now just moved in to a
one-bedroom flat in Croydon, southeast London, which she bought for
£135,000.
She says that her biggest problem was coming up with the deposit: “As a
first-time buyer it is difficult if you don’t have any help. Ironically my
mortgage payments are now cheaper than my rent, but it was getting the
deposit that I struggled with. Gerry offered to lend me the money, so that’s
what I did.” MyMortgageDirect found her a £120,000 interest-only mortgage
from the Alliance and Leicester fixed at 4.29 per cent for two years. It was
the maximum she could borrow.
“Because lenders were just looking at the income for one person, I think I was
quite limited in what I could get,” she says. She opted for interest-only
payments, so that, in the short term at least, she would be able to cover
the costs of moving and decorating.
She has an informal agreement with her brother that she will pay him back when
she sells up — an arrangement that they hope to formalise legally. But for
the time being she is very happy finally to have joined the world of
property owners.
www.mymortgagedirect.co.uk 0800
9530606
