With an outer-London semi priced around £4,000, it is easy to think first-time buyers had it easy in the 1960s. Not so. Then £1,000 a year was a good starting salary and a building society would lend only on a cautious multiple and loan-to-value, also requiring a prolonged record of steady monthly saving before accepting a mortgage application. Things changed in the next four decades of periodic high inflation and property booms. Higher multiples, 100% mortgages and other relaxations helped first-time buyers to pay – but at the same time also fuelled ever-higher prices.
The problems at Northern Rock four years ago highlighted that these relaxations had gone too far and revealed just how exposed some lenders were to inadequate security on many home loans. Since then, in a way, it has been ‘welcome back to the 1960s’. Mortgage lenders do have funds available, but they have tightened their lending criteria, reducing salary multiples and loan-to-value limits, to minimise defaults and negative equity situations. Now, as in the 1960s, would-be borrowers must usually put up a large deposit and accept a tight salary multiple.
In a simple market, prices would come down until new buyers could afford them, but the housing market is complex. Sellers melt away rather than drop prices, whilst buy-to-let purchasers buy more properties to house aspiring first-timers who cannot get on the ladder. It is a worrying time for young people wanting to own their first home – and for their parents. In some cases, a lump sum from family for a deposit may do the trick, but even then a suitable property may be put out of reach by the salary multiple.
The solution may be a ‘guarantor mortgage’. Under this arrangement, a parent or other third party guarantees the borrower’s mortgage repayments, to provide additional security to the lender and so enable it to advance a larger amount. The guarantor must demonstrate adequate free income to cover repayments on the entire loan or sometimes just the amount above that for which the borrower would normally have qualified. The borrower is responsible for all repayments, but the guarantor accepts a very real contingent liability, so should take expert advice. To explore this option for helping family members to buy their first property, please talk to us first.
A fee of a maximum of up to 1% of the loan will be payable upon completion, typically this will be £250.00.
Your home may be repossessed if you do not keep up repayments on your mortgage.