It’s already difficult for first-time buyers in London and the South East to buy their first home, without big name lenders such as NatWest and Alliance & Leicester reducing the maximum loan to value (LTV) in areas where house prices have risen dramatically.
Of course, it is a lender’s duty to ensure it does not lend sums that borrowers cannot afford to repay, but the availability of high LTV loans is key for first-time buyers. Across London and the South East spiralling house prices have left thousands of aspiring property owners struggling to buy their first home, a large number of whom are earning decent money in careers with strong salary potential. However, because property prices are so high they cannot stump up the necessary deposit.
Both lenders have acted in this way to protect the borrower from negative equity, but with repeated assurances ‘ from across the industry ‘ that the UK housing market is not at risk of negative equity, you have to wonder whether this move is a little over cautious.
The affordability criteria used by lenders should be sufficient to ensure borrowers can afford their mortgage. In such a competitive market, lenders should be encouraging new customers and coming up with ways of helping first-time buyers in these areas, without placing the borrower at undue risk. Fortunately, some headway is being made in this area.
Bradford & Bingley has recognised the need for mortgages that meet the needs of first-time buyers with the launch of a ‘rent-a-room’ mortgage ‘ the first loan to take income received from renting out a room into consideration when calculating affordability.
Acknowledging the fact that many first-time buyers will rent out a room to help them pay their mortgage, the product will hopefully make it easier for some people to buy.
Other lenders are helping borrowers without a deposit such as Northern Rock and Mortgage Express by offering 100% loans without a MIG.
No one is advocating further extensions to income multiples, but greater availability of high LTV loans, supported by sensible affordability assessments will go a long way in helping some first timers escape the rental trap and take their first steps on the property ladder.