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How to ease the pain for first-time buyers – Chris Hall

by: Chris Hall, operations director, Mortgage Guardian
  • 22/11/2016
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How to ease the pain for first-time buyers – Chris Hall
I think that we can take it as a given thing that mortgage professionals know too well the ongoing plight of the first-time buyer, especially in current market conditions.

House prices have continually outstripped wage growth in recent years and the inability to save even a 10% deposit has added to the frustrations of many first-time buyers eager to get onto the property ladder. This means potential new buyers are unable to move out of the parental home or leave rented accommodation. A good flow of first-time buyers is absolutely essential to the housing market with many lenders now stepping up to the mark looking at creative ways to break down the barriers of homeownership.

Those barriers are usually deposit or affordability-related with the latter being less of an issue the higher the deposit.

For those struggling to get a deposit there are some interesting opportunities out there:

Buying from the landlord

The government clampdown on the buy-to-let sector will potentially see some landlords offloading property. Mortgage lenders such as Nationwide will lend to tenants wishing to buy the property they currently live in without the need of a deposit. Selling a property at 10% below market price might be attractive to some landlords as they get a quick sale and save on estate agency fees. The same applies if the tenant is buying the property that they live in from their employer or even a family member, but the scheme unfortunately does not stretch to open market sales.

Family springboard mortgage

Barclays offers first-time buyers the opportunity to buy a property without the need for a deposit. A family member or helper would place the equivalent of 10% of the property purchase price into a savings account which would be returned with interest after three years if the mortgagee keeps up repayments. For this period the first-time buyer is offered a fixed rate of interest.

Equity charge

Parents who have profited over the years from house price increases are keen to help their children get on the property ladder. Several lenders will allow a collateral charge to be put on a parent or family member’s home instead of a deposit being paid by the first-time buyer.

The deposit is not the entire problem, as affordability is an issue for many as steady house price rises have been bad news for first-time buyers. Low interest rates have counteracted this to a certain extent. In the affordability battles the Bath Building Society provide a ‘rent a room’ mortgage for those who need to make homeownership more affordable.

Stamp duty thresholds have changed since 2014 so that there is nothing to pay on the first £125,000 and cashback deals are still popular offerings from lenders. Some lenders will even offer a first-time buyer a buy-to-let mortgage.

So, while it may look a little bleak at times it is not all doom and gloom for the first-time buyer.

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