With first-time buyers in mind, John Charcol senior technical manager, Ray Boulger, said: “Sourcing systems are useful but I am a great believer in using one’s brain to secure a mortgage as well as a sourcing system.
"It’s a skill for brokers to know which lenders it is worth talking to and with who to place the case. Getting the right product for that customer as opposed to the wrong one can make a big difference in terms of interest rate.”
Parental help, trackers and shared equity mortgages were given the thumbs up while higher lending charges and short-term fixes were given the thumbs down.
Boulger said there had been an increase in the number of parents helping children buy their first property and this was partly due to the increases in equity in the parents’ property. Parents can either offset their savings against their child’s mortgage or guarantee the loan.
“I am a great advocate of offset mortgages providing the interest rate is competitive enough,” he continued. “Parents’ savings can be linked to the child’s mortgage as well as the borrower’s savings offset against it. This is a very tax efficient way for parents to help children while staying in control of their capital. They will be giving up the net interest on their savings while helping the child by decreasing the amount of interest they have to pay on their mortgage.”
Boulger also recommended 'top-slicing' whereby parents guarantee part of the mortgage for their child, typically the amount above what they could borrow alone. The Bank of Ireland, Bristol & West and Norwich & Peterborough all allow this on some or all of their deals.
Regarding the length of deal advisers should recommend for first-time buyers, Boulger suggested terms of five years would be suitable for clients borrowing a high LTV. In a rising market borrowers initially borrowing 95 per cent would have enough equity in their property to remortgage to a 90 per cent deal within two years but with prices flattening, it is unlikely most first-time buyers would find themselves in this position until three or five years.
He said: “After this length of time the client should be able to remortgage to a sub-90 per cent deal with a better rate.”
