by Mark Johnston
First time buyers are starting to see an end in sight to the troubles they have had following the financial crisis. A number of mortgage lenders have launched new products which they claim will help first time buyers.
Northern Rock, the sate owned back that was rescued by tax payers following it causing the first run on a British bank in over 100 years. The bank recently announced that it will offer mortgages with a loan to value of 90%. These sorts of mortgages are classes as first time buyer mortgages because only a small deposit is required so those looking to get their foot onto the expensive UK property market wont need to save up as much as what was previously required.
The new mortgage has a rate of 5.99% for the two year version or 6.49% for the three year option. Those looking for something a little more long term can opt for a 5 year mortgage at 6.59%. the bank hopes to help first time buyers further by offering the mortgage with no fees. This really makes this offer stand out because other providers who are offering 90% mortgage for less charge a high fee which bumps the overall cost of borrowing up when the APR is taking into account.
Although some may think that offering these sorts of loans is a return to the irresponsible lending of the past, but it isn’t. Northern Rock got into trouble as it allowed customers to borrow up to 125% of the value of their homes so they were in effect going into negative equity. A 90% loan to value mortgage has now become the industry standard for first time buyer loans. It’s a good balance between affordability for those starting out in the property market whilst minimizing the exposure that laon default can cause.
Over the past few months, the housing minister Grant Shapps has called for the mortgage and housing industry to work together to support first time buyers and kick start the market.
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.
Following Mr Shapps call to arms a handful of lenders and house builders have already pledged support with Northern Rock is the latest to launch this type of product. 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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