First time buyers

It may not always seem like it, but mortgage lenders are actually falling over themselves to get business from first time buyers. Apart from being more flexible with their existing deals, they also create special products aimed at those hoping to get a first foot on the property ladder.

Figure it out

The numbers game is the biggest issue for most first time buyers. Figures from the government reveal that the average house price in the UK now stands at £159,480. But if you are earning an average salary of under £25,000, how will you ever get the mortgage you need? It is a dilemma facing thousands of people. The number of first-time buyers entering the property market is now at its lowest level since records began in 1974 according to research from the Halifax. During 2002, 526,300 first-time buyers purchased a property, but this figure dropped by almost a half in 2003.

If the financial headaches ended with getting a mortgage it would not be so bad. Buying property also means finding cash for valuation fees, the mortgage arrangement fee, solicitor's charges and stamp duty. But don't despair. Lenders are doing more than ever to make dreams come true for first-timers.

Multiple choice

Traditionally, you can borrow three times your income, or two and a half to three times the joint income of you and your partner. These are known as income multiples. But many lenders now offer higher multiples to attract borrowers who need the additional cash and are prepared to loan what they think you can afford to pay. It is also possible to obtain four times the main income plus one times the second income or even three times the joint income. It may be tempting to take the maximum amount offered and buy your dream home. But over-stretching your finances could lead to problems further down the line if you cannot afford the higher repayments. Think about what would happen if you lost your job or wanted to take a break from work to start a family.

The full monty

If you are paying rent and bills, there may not be much money left at the end of the month to build up a deposit. But it is worth trying to put something aside as this usually gives your greater choice when it comes to mortages. Paying for 20 or 25% of the cost of the property will probably help you secure a much better mortgage deal as loans of less than 80% of the property's value tend to be in lower interest rates and attract fewer fees. The minimum requirement with many lenders is 3%. One alternative is a 100% mortgage. The rates are usually slightly higher on these loans and the downside is that if property prices drop, you will immediately find you have negative equity, where your mortgage is higher than your property value. These deals also tend to attract a Mortgage Indemnity Guarantee or Premium. Put simply, this is an insurance premium you pay for that pays out to your lender if you cannot keep up repayments on the mortgage. In short, these loans cost more and carry more risks.

Get certified

Self-certified mortgages were created for borrowers who have fluctuating income or are self-employed and who would otherwise struggle to get a traditional mortgage. This type of loan does not require you to give proof of income but in most other respects the mortgages are the same as a standard mortgage. Most self-certified loans require a delcaration of income from the borrower but some lenders may insist on further information, such as confirmation from your accountant.

As always, though. it is crucial to avoid the temptation to borrow more than you need and over-stretch yourself. Many lenders also require bigger deposits - up to 25% of the value of the property - on self-certified mortgages than on standard mortgages. The added risk for the lender means that these loans often attract slightly higher rates, too. Ray Boulger of mortgage broker Charcol, comments: 'While they do tend to be more expensive, competition has forced that margin down. Some lenders are now offering the mortgages on the same terms as their mainstream loans.'

Work it, own it

If you are newly qualified and struggling to pay back university debts, you may get a lucky break. Certain jobs attract extra help with first mortgages. 'Key workers' such as nurses, teachers and police officers may be eligible for the government's Starter Home Initiative which provides help with deposits. Professionally qualified borrowers such as doctors or accountants may be offered preferable rates from lenders.

Family values

So long as you don't mind remaining attached to the apron strings, there is a way that parents can provide practical help. Some lenders offer special deals that accept your parents as guarantors. Put simply, this means they agree to assist if there are any payment difficulties. Most lenders ask the parent to guarantee all of the loan but some only ask them to be guarantor for the element outside what their child can afford.
The MarketPlace at Bradford & Bingley offers an exclusive version of the 1st Start mortgage, which is specifically designed for first timers. The product allows first time buyers to include their parents income when calculating how much they can borrow. The deal, funded by the Bank of Ireland, is a 2-year discount with a current pay rate of 4.29%. "With many parents having to physically find large amounts of cash to help their children with a deposit, this product offers an alternative solution. It allows parents, or indeed a relative, to use their income to help secure a larger loan, preventing them from having to find all that cash,' explains Elliot Nathan of The MarketPlace.

Rent a room

Of course, if you do not have wealthy parents or would prefer them not to have control over your mortgage, there are other options.

The Inland Revenue's Rent-a-Room scheme has special rules that usually apply when you take in a lodger (broadly, a lodger is someone who pays to live in your home, normally with meals provided, and who often shares the family rooms). Under the scheme, a certain amount of gross (that is, before expenses) income can be received tax-free from furnished accommodation in your only or main home. You cannot, however, then claim any expenses, or capital allowances. The 2003-04 allowance is £4,250.

Special Rent-a-Room mortgages are also available which allow borrowers to add the rental income from letting one room onto their salary before their income multiples are assessed. This means the scheme - ideal for low earners - enables the borrower to add the £4,250 allowance onto an income multiple of 3.25 times their salary (or 2.75 times joint) when borrowing.

'Many people are concerned about over extending themselves when it comes to mortgage borrowing,' explains David Bitner, technical manager at The MarketPlace. 'This solution provides a structured means of borrowing while at the same time allowing many more people to become homeowners.

10 key questions

Consulting an independent mortgage broker is a sensible move for anyone with unusual requirements such as first-time buyers who need to borrow more than lenders typically allow. Asking these 10 key questions will help you get the right deal:

  • * How much can I afford to borrow?
    * How can I tell which mortgage rate is best for me?
    * What is the best type of mortgage for me?
    * Which repayment method is best for my circumstances?
    * Can I make lump sum payments to reduce the size of the loan?
    * Are there any redemption penalties?
    * Does this mortgage come with compulsory insurance?
    * What other charges will I have to pay?
    * What happens if I can't pay?
    * What about the small print?
Pretty scary stuff... My sis will be on 17K (when she finally gets a job)… so 4 times that makes 68K, which can't even get you a bedsit round here!! She is a trained teacher (don't get me started on desperation for more teachers, she's been looking for nearly a year now) so techinically qualifies for a Starter Home Initiative, but there just aren't enough of them to go around… So glad I bought 4 yrs ago!!! 8)
this is a subject very close to my heart. I'm just about to return to the UK after my over seas posting, and was planning to buy somewhere. But having looked into it, I really can't see how I'm gonna be able to manage it. Ive saved a pretty substantial amount for a deposit, but it's still not enough. 3 & 1/2 times my salary wont be anything like enough. I'm thinking about going down to the street corner to sell my body, but I dought that will dring much in.
I understand some lender have special mortgages for service personnel, and there are schemes that give millitary first refusal on some x-quarters, but all this will have to wait till I'm home.
Unfortunately, we can only advise on remortgages. However, we would recommend you contact a local independent financial advisor who should be able to point you in the right direction.

There are a few things to check when moving your mortgage...

* Does your current mortgage lender allow you to rent out your property, even if your deal is not on a buy-to-let basis?
* Remaining term - how many years have you got left on your mortgage? By switching your lender, you can increase the repayment term for smaller monthly payments. Alternatively, you could decrease the term to pay your mortgage off sooner. This would require larger repayments, but you would pay less interest on the mortgage balance.
* Does your lender allow you the flexibility to vary your monthly repayments?
* You can fix your rates by remortgaging.

By switching your lender, you can save money on a more flexible mortgage. Consider the following:

* Find out your property's current value before remortgaging.
* Always look at redemption penalties. Your current mortgage lender may charge you to move before your current deal ends.
* Do you know your current outstanding balance? You should find this out before remortgaging to get the best deal.

NAAFI Financial will search the market on your behalf to help you get the best deal on your remortgage. Speak to one of our qualified consultants free on 00800 0001 02 03 from the UK and Germany, or +44 1722 342 245 from the rest of the world.
Alternativley you could email

I've heard they are more than helpful, dam good looking and thoroughly professional.
I have used the above (forces finance) and even though I had adverse (thanks Glasgow), they bent over backwards to get me a deal.

Good blokes and ex army to boot.
FS, not sure if you would have seen the program on tv, i think it was a couple of weeks ago about self certified mortgages.

They took hidden cameras into mortgage advisers and banks/building societies, to enquire about mortgages. They posed as low income people, and said they required a mortgage for around say £200,000.

The "advisors" were telling them that they could not get a straight mortgage for that amount through the banks ets, but if they were to get a self certified mortgage, and LIE about their income, they would not check up on it.

The banking sector denied all knowledge of course, and refused to comment....

It was quite scarey stuff when they showed people getting mortgages for ten times their annual income....

It would only take the interest rates to rise a couple of percent before all these people are in serious S**t, but in many cases it is the only way that first time buyers can get on the market.......
Enoch, I did not see it but it is an interesting problem. I know that while a lot of lenders would not agree to these huge loans, there are always some who would.

The main problem is that mortgage advisers are not regulated in the same way as investment advisers. Instead of strict rules which require them to carefully justify their advice, they have a voluntary code of practice. This will change in October this year when the mortgage code becomes statutory under the new scope of the finance watchdog the Financial Services Authority.

But the code is not very far-reaching and unless the FSA trebles its resources then it is unlikely to be able to enforce anything more meaningful. It means that some advisers/lenders can continue to make money out of irresponsible lending. The flip side of the coin is that as punters, we have a sense of responsibility to ourselves and should not over-borrow. Easier said than done though when the money is being waved at you. Unless we create a nanny state.

Professor Gower, the chap who created this country's first proper personal finance laws in the 80s had it about right. He said: 'Regulation should be no greater than is necessary to protect reasonable people from being made fools of.'
I think most people are happy to buy a house that far exceeds theri income based on the fact that the price of the property will rise.

Similar threads

Latest Threads