If you’re a first-time buyer or struggling to get a mortgage, there was some good news in January. The number of mortgage products requiring a 10 percent deposit has made a strong return since the low point in summer 2020.
Back then, there were just 44 products available. Now there is a choice of almost 200 according to the Moneyfacts Treasury Report, as well as a wider range of products requiring a 15 percent deposit. That’s still a long way from a pre-Covid range of almost 780 10 percent products in March 2020, but the upward trend is encouraging.
Moneyfacts also reported that average rates on two and five year fixed deals for 10 percent deposit products have fallen. For example, average two-year fixed rate deals have fallen from 3.79 percent in December to 3.64 percent in January. Average five-year fixed rate deals fell from 3.92 percent to 3.78 percent over the same period.
Lenders regaining some confidence
However, if you were hoping to find a product with just a 5 percent deposit, the search will be much harder. There are currently just 8 products available. This is why it’s always important to speak to a qualified mortgage broker who can help with your search and selection, like the ones at Portico Finance.
The earlier withdrawal of products was triggered by concerns that first-time buyers posed a greater risk of default during a time of economic crisis. Younger buyers were perceived as an even greater risk because of higher levels of redundancy in that age group.
Although the economic crisis remains, higher levels of activity in the housing market have given lenders a degree of confidence and that’s encouraging if you are looking for a low-deposit deal.
Related: Can I Move House And Keep The Same Mortgage
Shared Ownership set to become more affordable
There are other promising signs for first-time buyers with changes to the Government’s ‘Shared Ownership’ scheme set for the spring. The scheme, which is part of ‘Help to Buy’ will become more attractive in April 2021 when it will operate under a new ‘Affordable Homes’ programme.
Under the original Shared Ownership scheme, you can purchase a share of the home for a price that is currently between 25 and 75 percent of the home’s estimated value. You pay rent on the remaining share, generally to a housing association. You can also buy further shares in the home, currently in 5 or 10 percent instalments. From April, the terms will change:
- The minimum initial share will be reduced from 25 to 10 percent.
- You must be a first-time buyer with an annual household income less than £80,000, down from £90,000 in London.
- You can purchase additional shares in 1 percent instalments, down from 5 or 10 percent.
- Fees for buying additional shares will be reduced.
- Landlords will pay the costs of repairs and maintenance for the first 10 years of ownership.
- The rules on selling the property will change.
If you were considering a house worth £150,000, for example, you would need a deposit of just £15,000 compared to a minimum of £37,500 under the original scheme, plus a mortgage to cover the balance and a subsidised rent to the property owners. With that opportunity and the wider availability of low-deposit mortgages from High Street lenders, you’ve got a much greater opportunity to get on the property ladder.
More Government schemes for first-time buyers
There are other helpful Government schemes, like ‘Help to Buy’ and ‘Guarantor Mortgages’. The ‘Help to Buy’ scheme offers loans of 40 percent for homes in London. The home must be a new build valued at up to £600,000. You only have to provide a 5 percent deposit and meet affordability criteria for the balance of the mortgage, which would be 55 or 75 percent of the value of the property.
Some lenders may offer a Guarantor Mortgage. This works by allowing parents to help you by linking their income. Your parents act as sponsors, enabling you to obtain a mortgage of 85 percent. If you miss a payment, the lender can ask your parents for the shortfall.
Make sure you can meet lenders’ criteria
Those Government schemes offer a useful alternative to High Street mortgages. However, if you are applying for a mortgage, you need to be aware of lenders’ stricter requirements.
Some lenders have refused to consider applications from people on furlough and have imposed stricter lending criteria on self-employed workers. While affordability levels are still based on multiples of household income, proof of income and credit checks are now more stringent and approval processes generally take much longer.
That means you will have to provide a strong financial case with evidence of your ability to maintain repayments. And, mortgage lenders, like other employers, face challenges in maintaining their normal services. As a result, timescales for processing and finalising applications have lengthened and this means delays in receiving funds.
Portico Finance can help
Choosing the right mortgage provider can be a confusing and intimidating process, especially for first-time buyers facing tougher lending rules. That’s why we decided to bring the process in-house and launch Portico Finance, an FCA approved mortgage broker and protection service.
As well as advising on mortgages, we can offer a wider choice of fantastic deals. If you would like to find out more, please feel free to contact us on firstname.lastname@example.org or give us a call on 07824 353803 or 07824 353800.
To view all our available properties for sale in London click here. Or, if you’re thinking of selling your property, get an instant online property valuation.