by Mark Johnston
A report published recently by the Council of Mortgage Lenders (CML) has highlighted the plight of first time buyers. The new data which shows the amount of deposit required by anyone wanting to get onto the UK property market suggests that a first time buyer would need a whole years salary as a deposit.
The average price of a home in the UK is around £160,000. Following the financial crisis, lenders have asked for much larger deposits from first time buyers to reduce the amount of risk associated with lending to these types of customers.
The average first time buyer mortgages requires around a 15% deposit which would work out at about £24,000 for a £160,000 home. The average salary in the UK has just increased by 0.3% to £25,900, just £1,900 more than the deposit required by a first time buyer. In 2007 the figures published by the Council of Mortgage Lenders (CML) showed that the average deposit was £12,700 whilst the recent figures suggested that this had risen to a whopping £31,500. The report also showed that mortgage lending had dropped by around 13% last year (2010) this pointed out the concerns of many experts that the mortgage market is performing at a very subdued rate and that the trend will probably continue well into 2011.
With lenders standing firm on their lending policies to only lend to those customers who propose the minimum of risk, the outlook for first time buyers is pretty grim. The housing MP, Grant Shapp has been putting pressure on industry leaders to help first time buyers but little has been done so far.
Recently the minister held a meeting to discuss first time buyers plight with lenders, home builders and leading members of the industry to discuss what could be done. The idea was that Mr Shapps wanted to work with the industry to help first time buyers back onto the property market which in turn may give it the kick start it needs..
Sometime ago Lloyds TSB launched their ‘Lend a Hand’ mortgage which was launched to help first time buyers onto the market. The Lend a Hand mortgages allowed borrowers to take out a mortgage with just a 5% deposit. Other lenders offering similar deals offered their products at a much higher interest rate. Lloyds TSB offered their mortgage at a very competitive rate of 4.79% with a loan to value (LTV) ratio of 95%.
The Lend a Hand mortgage does require backing from a family member by securing part of the mortgage on their assets. The ‘helper’ benefits from getting a 3.75% savings rate on the funds that are securing the property although Lloyds TSB do take a legal charge over them in order to offset the overall risk. This is a new approach but does allow first time buyers a step onto the market with one of the smallest deposits on the market.
Hopefully the meeting held by the housing minister will kick start the industry into action. Already a handful of lenders and house builders used the opportunity to launch new schemes and products. The house building giant Taylor Wimpey together with Saffron Building Society and Melton Mowbray Building Society have team up to offer a mortgage for first time buyers that only requires a 5% deposit. Although schemes like these are a step in the right direction more needs to be done.
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