With the average first-time buyer property currently greater than £152,000 and Halifax reporting that first-time buyers now face an extra £120 on their monthly mortgage payments, buyers in 2006 had to borrow increasingly greater amounts to get their first foot on the property ladder.
Full-year figures from MAB revealed a 21% increase in the number of borrowers opting for 100% LTV mortgages in 2006 compared to 2005 and a 50% increase in the number of borrowers opting for mortgages in excess of 100% LTV.
The figures also show that over 11% of all MAB cases in 2006 were concerned with those wishing to borrow the entire value of their property or more.
These findings highlight the greater measures now available to first-time buyers to secure their first home. They also highlight the growing popularity and necessity of these products for first-time buyers in a time of increasing house price inflation and interest rate rises.
As house prices continue to increase and other living costs rise, many first-time buyers are finding it impossible to save towards a deposit. Therefore, many are opting for a 100% LTV mortgage to secure their first home and are choosing to convert their monthly rent payments to mortgage payments.
MAB research has also found that some first-time buyers choose to take 100% LTV mortgages to actually preserve some capital, rather than use it as a deposit. These buyers opt for 100% LTV so that they can use saved capital to fund additional costs at the outset, for example, decorating or furnishing their new property.
However, MAB has urged borrowers considering this option to ensure they are aware of the possible repercussions before they go ahead.
MAB stated the products often carry a higher interest rate of at least 1% more than other mortgages and higher lending charges often apply, adding another £2,000 – 3,000, which will increase the interest paid on the loan. Also, with a 100% LTV mortgage the buyer has no equity to fall back on should the price of the property, achieved in a forced sale scenario, fall below the price paid for it originally. In this scenario, the buyer will remain responsible for paying the lender any shortfall.
However, it is also important to note that in recent months more lenders have entered the market and are increasing the competition amongst 100% LTV products. First time buyers opting for these deals may therefore begin to benefit from driven down rates and fees as big lenders battle it out to offer the best product on the market.
Brian Murphy, lending manager, Mortgage Advice Bureau, commented: “100% and 100% plus LTV products are just two examples of products designed to help and facilitate first time buyers’ access to the market.
"In attempts to make the transition on to the property ladder as easy as possible for these buyers the option to borrow more than the value of their home is proving very popular.
“Many in the market still view these products as the final resort for mortgage borrowing. However, as seen through the increasing numbers of buyers opting for these products in 2006, these mortgages are now a very real solution for first-time buyers who stand little hope of entering the housing market without them. They offer an opportunity to move away from increasing monthly rental payments and offer some buyers an alternative arrangement to preserve capital without using it as a deposit.
“Whilst the cautions highlighted above should be heeded when considering borrowing this amount, a visit to an independent broker can ensure that the individual embarks upon a mortgage deal that they will be comfortably able to repay.”
