by Mark Johnston
Over the past few years first time buyers have had it pretty hard. Following the financial crisis many banks and building societies made it pretty difficult for first time buyers to get onto the property market as the tightened up their lending criteria. In order to reduce the risk on the mortgage portfolio and sure up their balance sheets, lenders required first time buyers to find increasingly larger deposits. With the average house price in the UK at around £150,000, many could not afford to the £30-£40,000 deposits that were required. This has left many would be buyers without any choice other than to put their dream of owning their own home on hold.
The housing minister Grant Shapps recently 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.
Data published by the Council of Mortgage Lenders (CML) suggests that it is much harder than it has been in the past for even responsible credit worthy individuals to get a mortgage. Before the banks tightened lending criteria up, banks and building societies offered loans of up to 90%, in some cases like Northern Rock 100% loans were available. The average deposit for a first time buyer was about 40% of their annual income which typically could be around £13,000 whilst today the average deposit required is well over that at about 95% of their annual income which would be upwards of about £31,000.
This has led to a much higher dependency on parents to raise the capital. Some lenders have even designed products around this idea.
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.
Michael Coogan of CML said: “It is good to see ministers taking the initiative to discuss how we can look to improve market conditions for first-time buyers. But no-one will be surprised to learn that there is no simple quick fix for a market that has changed fundamentally since the credit crunch”.
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