by Mark Johnston
Every since the credit crunch back in 2008, first time buyers have been left out in the cold as banks and building societies are looking to recupe their costs and move away from more risky lenders.
Mortgage providers are now realising that this segment of the market needs help and can be very profitable if approached in the right manor.
A number of lenders like the Co-operative, Post Office and Yorkshire building societies have recently launched 90% loan to value (LTV) mortgages to tap into these customers.
Back in July, the Yorkshire building society launched its market leading fixed rate 4.95% mortgage for borrowers with only a 10% deposit. At the same time the building society launched a three year version priced at 5.69%, again at 90% loan to value (LTV).
Tom Girling, a product manager the Yorkshire Building Society said: “At the Yorkshire, we’re trying to help as many people as possible obtain a mortgage – and offering fixed-rate loans to borrowers with a 10 per cent deposit is just one of the steps we have taken,”
Whilst lenders are trying to attract first time buyers onto the market, the reality is that many get turned down when they apply. According to one inside source, at least one of the big six retail banks (Lloyds, Santander, RBS, HSBC, Nationwide and Barclays) turns down 90% of applicants.
Lenders use credit scoring systems to make decisions about on-boarding and these are weighted towards lower loan to value (LTV) in order to reduce the overall risk to the bank or building society.
Applying for a first time mortgage can also have a detrimental effect on would be borrowers credit history which can impact the ability to get a loan in the near future.
Too many searches in a short space of time may ring alarm bells for the next lender and may effect a first time buyers credit score. To add to the problem, many of these lenders also ask for a non refundable application fee which may be up to £200 which is lost if the application is rejected.
First time buyers may well be better off going to smaller lenders that specialise in 90% mortgages such as Dudley, Cumberland and Furness building societies to improve the overall chances of being accepted.
Andrew Montlake a mortgage broker at Coreco suggests using a good broker to improve first time buyers chances of being accepted “A good broker will know which lenders certain borrowers will be best suited to and – perhaps more importantly – which lenders that advertise a 90 per cent offering are likely to produce the goods within the required time scale,”
Those looking for a mortgage should ask for a quotation search to be carried out rather than a formal search, this way its not logged on a potential borrowers credit file.
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