by Mark Johnston
According to recent research the people that are struggling to obtain a mortgage at present are first time buyers as they are now have to scrape together a deposit of at least 10-15%, which is a lot of money despite the fact house prices are falling sharply.
There have been suggestions that first time buyers should get used to the idea of being a generation of renters due to the size of deposits now required. It is reported that the average deposit now required is around £27,700.
Just over a fifth of houses sold this year were bought by first time buyers, this is half the level considered ‘healthy’ for the economy according to research.
The number of prospective first time buyers dropped 30.8% to 23% between July 2009 and July2011, these figures are despite an increase in mortgage products becoming available to this group.
An online study conducted by the post office showed that 50% of 700 first time buyers surveyed, aged 23-34, said that they would not be able to afford a deposit unless their circumstances dramatically changed.
Although two firstbuy direct mortgages have been launched. Supporting a government backed initiative aimed at helping more first time buyers on to the housing ladder. Buyers purchasing a home under the firstbuy direct scheme have a choice of a Woolwich 3 year fixed rate at 4.59% or a 5 year fixed rate at 5.49%, both of these come with a £299 application fee.
It is estimated that as many as 1 in 5 first time buyers applying for mortgages will not meet today’s strict lending criteria and will also experience difficulty obtaining a mortgage through poor credit history.
Reports have shown that many banks may use ‘dark arts’ to find a way to refuse mortgage applications. An investigation in to this by the Sunday mirror newspaper claimed that buyers with ‘stable’ jobs and savings have been knocked back with little explanation or obscure reasons as to why.
Evidence has shown that once first time buyer finds a lender who is lending with in their budget the next hurdle to overcome is the lenders credit scoring system, this it seems can be tightened or loosened at will.
Some mortgage experts state that many lenders routinely ‘tweak’ their credit scoring system and hide behind data protection laws. The results of the scoring are not published, so therefore banks can make changes with out having to mention a change to their lending policy. In answer to this claim many lenders this is not the case and they are simply being responsible lenders.
However David Hollingworth, a broker at London and Country said “there is plenty of evidence that banks are tweaking their credit systems”.
Monthly outgoings now also play a large part in deciding if a borrower is eligible for a mortgage and how much is available to them, the number of dependents borrowers have play a large factor also. This roughly means a couple with no children and no credit cards will be able to borrow substantially more than a couple with no children and outstanding credit card bills, despite them both having the same incomes.
Andrew Montlake of Cobalt mortgage brokers says “what we are seeing now is a return to how the mortgage market was 10-15 years ago.
The frustrating part of all this for borrowers is that there seems to be no uniformity to what lenders will ask for and when.
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