Mortgage: The first-time buyers' guideIs it possible to borrow more than the value of the home to cover fees?No. In February the last of the super-sized mortgages disappeared. Coventry building society withdrew its 125% deal and was closely followed by Alliance & Leicester, Abbey, Northern Rock and Birmingham Midshires. Mortgages of more than 100% loan to value (LTV) are now a thing of the past.
I can't raise a deposit - can I still get a mortgage?Just about. But a softening housing market and growing caution among lenders is causing 100% mortgages to slowly disappear too. According to recent research from online mortgage service mform.co.uk, there are now just nine lenders, including NatWest and Abbey, still offering 100% mortgages. This compares with 22, six months ago.
And even if you can get one, it is worth taking time to consider if it's the right move. Mform's marketing manager, Francis Ghiloni, warns: "With house prices falling there is a real risk of negative equity now for anyone taking a 100% mortgage."
I have a sizable deposit from my parents. Does this mean I won't be affected?It depends what you mean by "sizeable". In recent years, having 5% of the property value saved to put down as a deposit would be enough to secure a competitive mortgage. But increasingly 10% is becoming the "magic number", says Ray Boulger, technical manager at broker, John Charcol.
"As a ballpark figure, rates are around 6.5% if you have a 5% deposit and 5.75% if you can raise 10%," he says.
"But, crucially, most lenders also charge a higher lending fee at 95% LTV or above, which makes the mortgages more costly still."
Some lenders, such as Cheltenham & Gloucester and Accord Mortgages - which is owned by Yorkshire building society - have abandoned 95% lending altogether, insisting that first-timers put down a 10% deposit.
And mortgage giant Halifax no longer offers 97% lending, having reduced maximum borrowing to 95%.
This is a real problem for first-time buyers, says Rob Clifford, managing director at broker, Mortgageforce. "Despite some recent small falls in house prices - by 0.3% in February, according to Halifax - the affordability gap is no less prevalent than it was three to five years ago.
This means around a third of the first-time buyers we see still require mortgages of more than 90% - yet there is much less availability."
I have a bad credit history. Have I scuppered my chances of a getting a mortgage?Bad credit mortgages - otherwise known as adverse credit or subprime - are a big part of the cause of the crunch, so lenders are treading especially carefully around this area.
However, if you have between 10% and 15% to put down as a deposit and your credit problems are minor, getting a mortgage is by no means a lost cause, says Andrew Montlake, partner at broker, Cobalt Capital.
"The crunch may be on but lenders are realistic and one-off issues that occurred in the throes of a mis-spent youth can sometimes be overlooked by underwriters," he says.
"This is of course if the applicant is now stable and in a steady job."
You may still pay a premium on your rate though of up to 1%. And if your credit record is even slightly worse, you could have difficulty finding an affordable mortgage at all.
Will lenders be more concerned about the type of property I am buying?Certain properties, like flats above shops or those with unusual or historic features, have traditionally been bugbears of lenders trying to ensure their loans are secured against a structure that is safe from harm and will hold its value. But, now a different type of home has joined this risk list: new-build apartments.
There has been a considerable oversupply of new-build flats recently, which is forcing prices of these homes to fall quicker than other property types. Subsequently, lenders are pulling in their horns on these mortgages, says Richard Morea, technical manager at broker London & Country.
"Abbey recently restricted its maximum LTV on new-build homes to 85%. For new-build flats it reduced it down further to 75%," he says.
"The bank claims these types of homes are twice as likely to be repossessed."
Where first-timers should be especially on their guard is when it comes to developers' incentives such as gifted deposits or promises of "no mortgage to pay for a year."
Often this is just a tactic to inflate prices and lenders are wising up to this fact. Most lenders are now discounting any incentive and calculating loans solely on the price you are paying, says Morea.
Can I still consider buying with friends?Yes. These schemes have not changed and are a good way of affording to get on the ladder. Britannia building society's share-to-buy scheme, for example, will allow up to four friends on one mortgage and lend a maximum of three times each income.
Are interest-only loans still allowed?Yes, but you may have to jump through some new hoops. In the past, paying just the interest on the loan and worrying about paying for the capital at a later stage was one way of affording a home.
For example, on a £200,000 repayment mortgage priced at 6% and taken over 25 years, you would pay £1,289 a month, compared to £1,000 when paying just the interest.
But lenders have become more vigilant about checking that you have a repayment vehicle set up - such as a pension or Isa - in which to start saving to repay the capital.
Even if you do have one, the lender can't be completely sure you save regularly into it, which is why some, like Abbey, are reducing LTVs on interest-only loans to a maximum of 90%.
Will the government help me?The fact that lenders are battening down the hatches is not the fault of first-time buyers who generally pay their mortgages on time - it's to do with liquidity problems in the wider international markets.
"This means there is a strong feeling that the government should be helping," says Mortgageforce's Rob Clifford.
But the chancellor offered little help for first-time buyers in last week's budget. He did amend its current shared equity scheme, open market homebuy, to enable the buyer to qualify for 50%, as opposed to 75% of the property value, but this will only aid a small number of first-time buyers.
As a first-time buyer, am I worse off than people already on the ladder and remortgaging?Not really. The three-month Libor rate, which is the crucial rate at which banks lend to each other and by which many mortgages are priced, went up this week to almost 6%. This makes mortgages more expensive for everyone with less than a 50% deposit, says Ray Boulger.
Tougher lending requirements are hitting everyone too. And, perversely, at least first-timers can take advantage of cheaper homes arising from distressed sales, where the homeowner can no longer afford to pay their mortgage.
Source: Guardian
