Although the news today that another recession is looming may not bring good tidings and cheer just before Christmas, there is something that first-time buyers should be thankful for. The government have introduced plans for a new affordable housing strategy. As from Spring of 2012, it has said that it will join forces with the builders in the UK who will build new houses and the government will then offer a special indemnity insurance to the UK’s mortgage lenders. Lenders, by return, must provide a 95% loan to value (LTV) mortgage, to up to 100,000 potential buyers of these newly built properties. Why is this so important you ask yourself? Well, if there happens to be a double dip in the housing market and these homes end up being worth less than the mortgages on them, this means that the lenders will be able to recover their losses, through the indemnity insurance.
First time buyers will already know that getting a 95% mortgage is nigh on impossible since the recession took hold and especially when the credit crunch hit the UK back in 2007. Banks have been more than overly cautious about lending money and those that did offer mortgages made sure customers had an perfect credit rating, making it practically impossible for the vast majority of people. It appears that three of the big banks have signed up to this new government scheme, they include: Barclays, HSBC, Lloyds, and amongst the smaller ones are – Nationwide, RBS, Santander and Yorkshire and Clydesdale banks. It will not be an easy ride however; you will still have to meet each lender’s borrowing criteria. This means having an adequate salary to support the loan and passing the lender’s own credit scoring system.
There are other ways of getting a foot hold onto the housing ladder, even though prices are still relatively high. If you have a pretty good credit rating then look to the banks that are still offering a 95% mortgage deal, there are some out there. These include Clydesdale and Yorkshire banks, Skipton, Melton Mowbray, Ipswich, Saffron, Shepshed and Mansfield building societies. Be prepared for bigger rates on these deals that you would pay if you had a larger deposit however, which is only to be expected. If you can raise a larger deposit than 5% then obviously you’ll benefit from a lower mortgage rates. And of course, you won’t have to borrow so much in the first place which means less to pay back overall. And, you’ll be pleased to know that 90% mortgages are becoming much more popular and competitive. Check out deals with HSBC for their 10% mortgages.
Another way to get a first time mortgage is to share the equity. This means that you can get all the benefits from a 75% mortgage but only need to raise 5% of the deposit. The way this works is that the bank or building society gets its security from someone else who is willing to stump up the extra money. Lloyds TSB’s ‘Lend a Hand Mortgage’ deal for example means that you pay the 5% cash deposit but your ‘guarantor’ will need to keep savings of 20% of the property value with the bank. Although this money stays with the bank, it still earns interest, but it is used as security for what is effectively a 75% loan to value mortgage, and will come with rates to match.
Finally, if you do not have a guarantor that will help you out with their savings, you could share the cost of the deposit with the government and a participating property developer under the FirstBuy Direct scheme. This was introduced in the 2011 Budget and the scheme requires that first-timers need only to put down a deposit of 5% of the value of the property. They then take an additional 20% as an equity loan which is matched in equal measure by the government and a local property developer. The equity loan is interest-free for five years and first-timers benefit from mortgage rates that apply to a 75% mortgage, which makes things a lot easier on their pocket. Lenders who are participating in this scheme include Halifax, Nationwide and Woolwich. But remember, when the house is sold, the loan will have to be paid back at the same percentage. So, if you are lucky enough to have made a profit, you will have to pay back the relative proportion.
And one last thing to remember for first time buyers – according to figures from www.rightmove.co.uk, house prices are falling steadily. Apparently the average asking price decreased from 3.1% in November from the previous month. This is the biggest fall since December 2007. If you are a first time buyer, let’s hope the trend continues!