This week, the prospect for first-time buyers looking to get onto the property ladder increased as a number of mortgage lenders, including Nationwide and Metro Bank, announced they are reintroducing high loan-to-value (LTV) mortgage deals.
While this is good news for first-time buyers, the fact remains that the market still remains challenging. On Monday, we reported that between June and July, the number of products available at 90% or 95% LTV have more than halved. As well as this, it is unlikely that many first-time buyers will benefit from the Government increasing the stamp duty threshold to £500,000, as first-time buyers were already exempt from stamp duty on properties valued to a maximum of £300,000 outside London and £500,000 in London.
It is true that last month, the Nationwide House Price Index showed house prices have fallen for the first time since 2012, making houses slightly more affordable for new buyers. Saying this, a combination of the stamp duty holiday and highly competitive mortgage rates on lower LTV deals is designed to get the housing market moving again and, if it is successful, is likely to see prices start to increase once more.
Despite the challenging market, there are still some options available to first-time buyers that will make purchasing a home more affordable. Below we take a look at some of the options available to first-time buyers.
A guarantor mortgage is designed for those who do not have a good credit score or who do not have the 5% deposit needed to get a 95% LTV mortgage. Our research has found that there are 11 guarantor mortgages currently available in the market. Of these, eight are available at a 100% LTV, meaning that a house deposit is not required. In order to get a guarantor mortgage, borrowers need a third party – usually a close relative – who may become liable for the entire mortgage if the borrower defaults on their mortgage repayments. The majority of these mortgages require the guarantor to put up collateral, such as a savings deposit or charge against their own property instead of making payments, for example Barclay Mortgage’s Springboard deal.
As well as this, rates on guarantor mortgages are higher than those offered on standard residential deals. For example, Barclays Mortgage offers one of the lowest guarantor mortgage rates with its Springboard deal, offering 3.05% on a five year fixed rate deal. Alternatively, the lowest five year fixed rate deal at a 95% LTV is 2.85%, which is also being offered by Barclays Mortgage. To put this in real terms, a borrower buying a house at a value of £200,000 at 3.05% will have to make monthly repayments of £953.63 over a 25-year term. Those who are able to save up £10,000 for a 5% deposit and able to get a mortgage at 95% LTV will have monthly repayments of £886.25 – this is a saving of £67.38 per month and £808.56 per year.
As there are so few guarantor mortgages currently on the market, first-time buyers interested in purchasing a house with this type of mortgage should speak to a mortgage broker to discuss their options and get the best deal available.
Not to be confused with the no longer available Help to Buy ISAs, a Help to Buy scheme incorporates a soft loan from the Government to help consumers purchase a home. Help to Buy mortgages are not only available to first-time buyers but also available to existing homeowners moving home, but they can only be used to purchase new build properties that are part of the scheme and valued to a maximum of £600,000. This scheme is only available to those located in England, but similar schemes are available in Wales, Northern Ireland and Scotland.
In order to get a Help to Buy mortgage, borrowers need to have saved up or have a minimum 5% deposit available and then they can get a 20% loan (up to 40% in London) from the Government in the form of a loan. This means that they can then purchase the property with a get a 75% LTV deal. While the Government loan is interest-free for the first five years, after this time, borrowers will liable for interest on the loan. This should therefore be factored into the mortgage repayments costs.
Going back to the example of buying a property valued at £200,000, borrowers will need to borrow £150,000 through their mortgage (subtracting the £10,000 5% deposit saved by the borrower and the £40,000 20% Help to Buy loan). The lowest five year fixed help to buy mortgage is currently being offered by NatWest at 1.61%, which means that borrowers will have monthly repayments of £607.69.
For the first five years, borrowers only need to pay £1 per month towards the Help to Buy loan. After the first five years, they then need to make interest repayments on the loan. Currently, the interest stands at 1.75% (but this increases each year). Borrowers do not need to repay the loan until the term of the mortgage has ended. The most common way for Help to Buy mortgage borrowers to repay the loan is through remortgaging at a higher LTV and using the equity within their home to repay the loan.
Shared ownership allows consumers to buy a share of their home from a housing association. Usually, between 25% to 75% of the property is owned by the homeowner and rent is paid on the remaining percentage. This scheme is only available to those located in England, but similar schemes are available in Northern Ireland, Scotland and Wales.
To be eligible for shared ownership, the household has to earn £80,000 or less (£90,000 or less in London) and they are either a first-time buyer, used to own a home but cannot afford to buy one now or are an existing shared owner.
If a house valued at £200,000 was bought through shared ownership at 25%, the borrower would own and therefore get a mortgage on the 25% of the property they own, while the remaining 75% would be owned by the housing association. This means that the homeowner would have a £50,000 mortgage. Borrowers looking for a mortgage on a shared ownership property have to get a shared ownership mortgage. Currently, the lowest rate on a five year fixed comes from Barclays Mortgage, which offers 1.38% at a 60% LTV. This would mean that borrowers would need a 40% deposit (£20,000) and have a mortgage on the remaining £30,000. This would mean their monthly repayments would be £118.30. Over time, homeowners can purchase a larger share of their property, up to 100% of its value in some cases.
Before taking out a shared ownership mortgage, borrowers should also factor into their monthly costs the rent charged on the remaining part of the property owned by the housing association. Those considering shared ownership should also be aware that the house is a leasehold, meaning that after the lease has ended, ownership of the house reverts back to the housing association.
There have been schemes available to key workers (defined as public sector workers providing essential services such as the police, NHS workers and teachers) to help them get onto the property ladder. For example, some major homebuilders will offer a discount, often up to 5%, to keyworkers. Alternatively, often the schemes highlighted about will give priority to key work applicants. To find out more about buying a home as a key worker, read our guide How to get a key worker mortgage . As well as this, a mortgage broker should be able to provide advice of any further help currently available to key workers looking to purchase their first home.
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