First time buyers are returning to the mortgage market after a period of enforced exile caused by the deadlock of high property values and lack of accessible mortgage products.
“Over the past three months we have seen a 15% increase in enquiries from first time buyers,” said Paul Hearnden, managing director of My Mortgage Direct. “The stability of interest rates and the stagnation of property prices have coaxed prospective purchasers to take the leap into the property market.”
And, crucially, today’s FTB market now shows similarities to that of the late 1980s, when soaring property prices led friends and siblings to pool their resources in order to get a foot on the ladder.
“Joint applicants, in particular, are finding themselves much better placed to secure an affordable property and mortgage to suit,” said Hearnden.
“People are realising they have to be creative if they are to succeed in entering the property market. For instance, we have seen friends clubbing together to buy an investment property whilst continuing to live in rented accommodation in order to build up equity that will provide a deposit for both parties to purchase their own homes.”
Lenders are also looking back to the 80s for inspiration to stimulate the market. Abbey, for example, is relaunching its 97% mortgage to a wider audience. This, along with flexible underwriting looking at affordability rather than just income multiples, is allowing people to borrow what they need.
However, borrowers eager to take up very high loan to value mortgages need to be aware that these products nearly always involve additional costs.
“Many lenders do not add a higher lending charge to loans of 90% and under,” said Hearnden. “But for 95% mortgages and above, the fees can be considerable – the higher the loan the bigger the fee.”
Another way of breaking out of the mortgage mire is to extend the “normal” term of 25 years to 30 or 35. “Buyers are opting for fixed rates above trackers with some extending the term past the usual 25 years in order to keep the loan on a repayment basis which is a welcome sight.”
However, there is cause for concern for some “older” first time buyers: “Many applicants now reach their 30s before they are able to get on the property ladder, by which time they have established a comfortable lifestyle,” said Hearnden.
“As they are unwilling to tighten their belts they are opting for interest only mortgages with the intention of switching to repayment in a few years. But many will never find the right time to take that step, meaning they will never reduce their debt.”
But whatever market forces throw at younger house buyers there’s always somewhere to turn for help: “Parents remain a reliable pillar of strength for the FTB market, with many people able to draw on the equity they have acquired over the past 20 years to help their children with deposits.” said Hearnden.
