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New loan deals help ease plight of first-time buyers

First-time buyers who watched in dismay last year as high loan-to-value mortgages all but disappeared now have something to celebrate

Wannabe first-time buyers who watched in dismay last year as high loan-to-value mortgages all but disappeared now have something to celebrate. 

Last year’s famine has turned into a relative feast, with more than 100 high loan-to-value mortgages now available – and more being launched every week. 

The lack of such 90 and 95 per cent mortgages last year meant first-time home sales – as a proportion of the market – reached their lowest level since 2016, according to online estate agent Zoopla. But since the turn of the year, first-time buyer numbers have been steadily increasing. 

Celebrating: Last year’s famine has turned into a relative feast, with more than 100 high loan-to-value mortgages now available – and more being launched every week

Those looking to take their first step on the property ladder received a further boost last month when the Government’s mortgage guarantee scheme launched – enabling borrowers to get a mortgage with just a five per cent deposit. 

But a combination of high demand, soaring prices and affordability issues mean that many first-time buyers still have their work cut out getting on the property ladder. Experts advise borrowers to keep a clear head. ‘The market is positively frenzied at the moment, so it’s important to be clear about what you can afford and what you’re prepared to pay,’ says Sarah Coles, personal finance analyst at wealth manager Hargreaves Lansdown. ‘It might seem like an ideal first home, but if it overstretches your finances you could end up bitterly regretting it.’ 

Jemma Smith and her musician partner Josh finally bought their first home – a three-bedroom cottage in Oxfordshire – just a few weeks ago after two years of property-hunting. During that time the pair, who were renting in the area, put offers on a number of houses but always lost out. 

‘During the first lockdown, we’d phone up the morning after a viewing to make an offer only to be told the house was already sold,’ says Jemma, 29, founder of online tuition company The Education Hotel. ‘It seemed that everyone was moving out of London to Oxfordshire.’

Jemma and Josh finally found their dream home, a ‘shell’ of a house in the next village to where they were renting. Having patiently saved for years, the pair were able to purchase the property with a relatively low loan-to-value mortgage and will now spend the summer doing everything from knocking down walls to redoing the plumbing and electrics. ‘It needs a bit of love,’ says Jemma diplomatically. 

With rising prices and soaring demand, life isn’t easy for first-time buyers, but at least there is now the option of ‘only’ having to provide a 5 or 10 per cent deposit. 

David Hollingworth, of broker L&C Mortgages, says: ‘Last summer, everyone was wondering where the 90 per cent mortgages were, let alone the 95 per cent ones. 

‘For a while, lenders were making mortgages available, only to withdraw them when they were overwhelmed, adding to homebuyers’ stress.’ 

He adds: ‘Now things are more stable with a good range of 90 and 95 per cent deals on offer.’ 

Kevin Roberts, director of Legal & General Mortgage Club, agrees: ‘The current low-interest climate means that the growing range of products on offer presents borrowers with great value and there has rarely been a more affordable time to borrow. The pandemic undoubtedly had an adverse impact on the choice available to first-time buyers, but we are now entering an exciting stage where a growing number of options are popping up.’ 

Lloyds Banking Group, NatWest, Barclays, HSBC and Virgin Money are all offering high loan-to-value mortgages to first-time buyers, but Hollingworth says: ‘They won’t be the solution for everyone given mortgage rates tend to be higher.’ 

The market-leading 95 per cent mortgage is currently priced at 3.73 per cent while at 90 and 85 per cent the best rates are priced at 2.99 per cent and 2.43 per cent respectively. Says Hollingworth: ‘Even if someone has a five per cent deposit they might choose to keep on saving until they qualify for a lower mortgage rate. Or they could buy and remortgage after a couple of years when they’ve paid some of the mortgage off and hopefully the property has increased in value, though that’s not guaranteed,’ 

With many lenders still cautious about lending at 95 per cent loan-to-value, some are only likely to accept those with strong credit histories. 

Others might find that even if they have the required five per cent deposit they might not meet the lender’s affordability checks. 

While borrowers might be able to prove they can afford their home loan, they also need to pass an affordability test at 3 per cent over the standard variable rate, which currently stands at 3.6 per cent. This means they have to prove they can afford a mortgage priced at 6.6 per cent. 

WHERE ARE BEST PLACES TO SNAP UP FIRST HOME? 

The average value of a first-time buyer’s property is currently £196,223, according to Nationwide’s House Price Index. 

Yet this varies widely across the country, with the average being as high as £416,682 in London compared with just £110,556 in the North of England. With most lending capped at 4.5 times income, many first-time buyers are effectively priced out of affluent areas. 

Richard Donnell, director of research and insight at online estate agent Zoopla, says: ‘Greater availability of 95 per cent mortgages will have the greatest benefits for buyers in lower-value housing markets in Northern England and Scotland where a 95 per cent mortgage is more attainable. 

‘The scheme will have less impact for buyers in southern England where high house prices are a major barrier to being able to afford a 95 per cent mortgage.’

A recent survey by Halifax found that Burnley in the North West was the most affordable town in the UK for first-time buyers, with prices equivalent to just 3.1 times the average buyer’s annual income. 

Other affordable locations were East and North Ayrshire, Inverclyde and West Dumbarton (all in Scotland) – and North Down and Ards in Northern Ireland. 

According to analysis of Land Registry figures by building firm BuildScan, the average first-time buyer in England paid £207,068 for their first home in May 2020. But the figure has now risen to £221,743, a rise of 7 per cent. 

A first-time buyer property in Islington, London, costs an eyewatering £667,687.

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