First-time buyers facing a lock-out
A stamp duty holiday is welcome, but a lack of low-deposit mortgage deals matter more to first-time buyers. Sharon Dale reports.
While some first-time buyers will be grateful for Rishi Sunak’s latest act of generosity in raising the Stamp Duty threshold to £500,000, there is a bigger barrier to home ownership for many in Yorkshire, where wages and house prices are lower.
Finding a 95 per cent mortgage is now nigh on impossible and it is also a huge struggle to find a 90 per cent loan.
In Selby, a hotspot for firsttime buyers priced out of York, Carol Bryson, founder of JP Harll estate agents, says: “It would seem the pressure of lockdown has increased the number of firsttime buyers looking for their own space.
“Parents are only too happy to help them leave with deposit donations but mortgages that require a five per cent or 10 per cent deposit are mostly unavailable at the moment.
“It is very frustrating and upsetting for young people who thought they would be able to get on the property ladder and this lack of small deposit mortgages is ultimately holding back the economy.”
The problem, says Andrew Milnes, mortgage adviser and business principal of the Mortgage Advice Bureau in Bingley, is not that lenders lack funds or that they are unwilling to lend.
It is that they simply don’t have the staff to deal with the volume of work they are now faced with.
Andrew says: “They are busy with those who have taken mortgage holidays so they don’t have the capacity to process the number of mortgage applications they are getting.
“They didn’t expect the housing market to rebound so quickly, so they have withdrawn the high loan-to-value products for now, which makes it very difficult for first time buyers at the moment.
Andrew adds that there are only three main lenders who are offering 90 per cent mortgage requiring a 10 per cent deposit.
These are HSBC, Accord and the Bank of Ireland.
But, as they are deluged, mortgage applications that used to be approved within a week are taking up to two to three weeks.
The next hurdle is getting at the mortgage funds as only a set quota is released each day.
“It’s tough. I have staff on at
7am and even then there’s only a one in 10 chance of success,” says Andrew, who believes that the situation will ease.
“It will take time but I think in the next few months what we are experiencing now should get better.”
In the meantime, some firsttime buyers have been calling on the bank of mum and dad to help them boost their deposit while others have taken personal loans to make up the difference.
“Taking a personal loan is a possibility but you have to be very careful that it doesn’t affect your credit picture and, therefore, a mortgage application,” says Andrew. “We are seeing lenders doing extra checks just before they release funds.”
While seeing the house of their dreams snatched from their grasp due to the short-term withdrawal of mortgage deals has been heartbreaking for many, the extra time for saving and planning may be a blessing.
The housing market, which is hot with pent-up demand, may also have cooled down and interest rates are likely to remain very low.
Lenders have changed their criteria to account for COVID
19 so make sure you still tick all the boxes for mortgage eligibility and check that you can still get a mortgage in principle.
Those who work for companies deemed at risk of collapse are more vulnerable.
However, Andrew Milnes says that being furloughed may not be a negative.
“If you can show that you have survived on 80 per cent of your usual salary that could well be seen as positive.”
Using an independent mortgage broker can help inputting you mortgage ready, filling in forms and in finding a mortgage deal.
While there is a fee to pay it may be worth it.
Remember that interest rates are very low and are likely to remain so and forecasters report that house prices are unlikely to rise by much, if at all, over the next year so there is no great panic to buy.
If you are planning to buy a home that costs over £125,000 then the stamp duty holiday announced by the chancellor runs until March 31, which gives you time to take advantage of it.
For those still saving for their first home, the government’s Lifetime ISA offers a very generous return.
You must be 18 or over but under 40 to open one and can put in up to £4,000 each year, until you’re 50. The government will add a 25 per cent bonus to your savings, up to a maximum of £1,000 per year.
However, you can only withdraw money and enjoy your 25 per cent bonus if you are buying your first home, you are aged 60 or over or you are terminally ill with less than 12 months to live.
You pay a withdrawal charge if you take out cash for any other reason and your account is stripped of the government bonus.
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