Hope grows for first-time buyers as mortgage lending on the rise

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Most people aspire to own their own home. With house prices up by 29.7 per cent in 10 years, it makes good financial sense.

Yet gaining the first foot on the property ladder can be difficult. The good news for prospective first-timers is that mortgage lending increased by a fifth in March and that rates are falling.

No less than 19,100 home loans were advanced, worth £2.4bn – an increase on 15,900 confirmed in February.

The Council of Mortgage Lenders said borrowers were finding it easier to gain loans without requiring a large deposit.

According to the Council, a deposit of 10 per cent or less was paid in the first quarter by one in four first-timers, compared with only one in five for the same period last year.

Part of the easier access for first-timers is the result of the Government’s Funding for Lending initiative.

This scheme has loosened the supply of mortgage finance and reduced its expense through £80bn funding. Banks and a few building societies can use the money provided they cut interest rates on borrowing to consumers and small firms.

First-timers form a key group to inspire the property sector. The Royal Institution of Chartered Surveyors reported that last month new buyer enquiries jumped to their highest level since late 2009 whilst firm instructions also rose.

In January, an additional plan will come in – the Help to Buy scheme, which the Chancellor outlined in the March Budget. It aims to help banks provide home loans for up to 95 per cent of a property’s value.

The thinking behind it is that prospective home buyers without sufficient capital to purchase or move will have success.

It cannot be used in conjunction with part exchange. Up to 74,000 home buyers will be helped with an allocated £3.5bn budget.

The downside could be that property prices will jump by 30 per cent to £300,000 by the end of 2015, according to Fathom Consulting.

Yorkshire and the Humber has the second highest percentage of outstanding mortgage debt per household on their main property after south-east England.

Yet with insufficient new stock becoming available, the private rented sector is booming. Analysts expect such demand to continue for the next two years.

The Government is supporting 170,000 affordable homes at a cost of £4.5bn and recently increased its plan by a further 30,000 over its spending review period.

According to the latest House Price Index published by the Land Registry, the average British home is now valued at £161,793 – a rise of 0.9 per cent over the past year.

Ray Boulger, senior technical manager at brokers John Charcol, predicted last November that house prices for 2013 would increase by two per cent. He has just revised this figure to five per cent.

Yorkshire Building Society reports a 17 per cent increase in mortgages taken out by first-time buyers in the first two months of the year by comparison with the same period in 2012.

“This is great news for the economy as first-time buyers are an integral part of a healthy property market,” says Brendan Gilligan, YBS product mana- ger.

“Mortgage costs are at a record low and an increasing number of deals at high loan to value levels have appeared on the market, creating an excellent opportunity for first-timers to gain a foot on the property ladder,” adds Mr Gilligan.

YBS has designed specific aspects to help the first-time purchasers like cash back on completion, zero fees, free property valuations and legal cost assistance.

If family members are to help with the finance, consider an offset mortgage.

Using such a loan, family savings can help youngsters lower their monthly repayments or reduce the term of the mortgage. YBS claims to be unique in offering offset options on all its mortgages.

According to research by Opinion Matters for Yorkshire Bank, first time purchasers are aiming high when it comes to the size of home they aim to buy. Almost one-third (29 per cent) set their sights on buying a three-bedroom house.

A two-bedroom flat is the aim of 22 per cent whilst a fifth would like a two-bedroom house.

In terms of length of predicted stay, 23 per cent see a four-to-five-year period for their first home, 21 per cent for more than 10 years and others for lesser times.

Currently, 56 per cent buy their first property as the sole owner whilst 42 per cent purchase with a partner or friend.

Men prefer to live on their own (72 per cent) by comparison with 56 per cent for women.

“Yorkshire Bank is one of the few lenders still offering 95 per cent loan to value mortgages to first-time buyers and can also help prospective homeowners to save the necessary deposit with our regular Home Saver account,” says Andrew Pearce, retail director at the bank.

It currently offers three-year fixed loans at 5.19 per cent with a 10 per cent deposit or at 6.49 per cent for buyers with a five per cent deposit.

First-timers often like the flexibility of two-year loans although longer term fixed rates at the current low levels should really be considered.

One benefit of a two-year one is that it may be possible to raise the equity stake during the life of the mortgage and thereby gain a better rate.

Brokers guiding property newcomers have seen the affordability element relaxing. Most lenders work on mortgages based on 3.75 times income but this increased in early May to 4.75 times with West Bromwich Building Society.

Looking at a 95 per cent to value, Charcol (the trading name of Towergate Financial West) say the top offers for a three year term are:

n Melton Mowbray 5.2 per cent APR with a 3.25 per cent early repayment charge, £998 lender fee and £140 lender exit fee.

n Saffron 5.5 per cent APR with nil early repayment fee, £495 lender fee and £130 lender exit fee but requiring 12-month rental history.

As alternatives on a 90 per cent loan to value with £995 lender fee, the same broker (who has an initial consultation obligation free with a service fee of £450) has sourced:

n Skipton 5.3 per cent APR with 1.5 per cent discount off standard variable rate for two years with one per cent early repayment fee for two years, £125 but interest to end of month for lender exit fee.

n Accord 5.5 per cent APR fixed five years with no early repayment fee and £90 lender exit fee.