Mutuals offer hope to new homebuyers
HOMEOWNERS and landlords are enjoying some of the best mortgage deals in memory. But those hoping to buy their first home without the benefit of a huge deposit remain almost entirely frozen out of the market.
Many lenders still view firsttime buyers as a higher risk and reserve their best mortgage rates for borrowers with at least a 40 per cent deposit.
But there is some hope for frustrated buyers – notably in the building society sector, where several mutuals are sticking to their principal aim of helping ordinary people own a home.
On Friday, Yorkshire Building Society released figures showing it has increased the number of loans to first-time buyers by 32 per cent in the first half of the year, compared with 13 per cent by all lenders.
One in four mortgages approved by the mutual since January has been to those who have never bought a house before – a total of 2,800 new buyers.
Group mortgage manager Chris Smith points to the society’s 20 products specifically designed for first-time buyers. These include Offset Plus, where parents can use their savings to help make a house purchase more affordable for their children, and deals that require only a ten per cent deposit but still have a competitive rate, no fees, free legal assistance and £500 cashback.
With Offset Plus the parent can put savings into an account that earns no interest, but the funds are used to offset their child’s mortgage. The child needs to pay only the interest on the outstand- ing balance, bringing monthly costs down.
The borrower would still need a ten per cent deposit and the rates do not compare well with those offered to borrowers with bigger deposits. A five-year fixed rate for a loan of 90 per cent of the property’s value is 5.14 per cent with a £995 fee.
Almost half of all first-time buyers have some form of financial help from their parents, according to a Lloyds Banking Group survey. This figure rises to 80 per cent for buyers in London.
There are other schemes to help parents get their offspring on to the ladder, but without having to gift a lump sum for the deposit.
Lloyds’ Lend a Hand scheme, for example, enables borrowers to buy with just a five per cent deposit, but then a parent must put the equivalent of 20 per cent of the purchase price into a savings account with Lloyds to act as additional security. A three-year fixed-rate mortgage is available at 4.19 per cent and a £995 fee. The parents must leave the cash in the savings account for at least three years and they will earn interest on it at 3.7 per cent variable. Lloyds also lets local councils act as the guarantor as part of its Local Lend a Hand programme.
Fireman Matt Champion, 28, bought his first home in Cosby, Leicestershire, in December 2011 under Local Lend a Hand. His district council of Blaby acted as the guarantor for 20 per cent of the purchase price and Matt, together with girlfriend Charlene Raine, 26, a legal assistant, put down a five per cent deposit on the £132,500 property.
This scheme offers a three-year fixed rate at 4.49 per cent with a £995 fee or 5.09 per cent with no fee. The council remains as guarantor for five years.
The aim of both Lend a Hand and Local Lend a Hand is that the borrower will build up enough equity to be able to remortgage at more competitive rates, without the need for a guarantor, in the future. Matt says: ‘Lend a Hand has meant the difference between us getting on the ladder or just renting for years.’
Bath Building Society’s Parent Assisted Mortgage is available to all first-time buyers over 21 in England and Wales.
The society will lend up to 95 per cent of the value of the property. But where a loan is greater than 80 per cent of the property value, a parental guarantee is required in the form of a collateral charge over the parent’s own home for the difference between 75 per cent and the amount being borrowed.
Rates vary depending on the deposit but at 95 per cent loan-tovalue there is a three-year fixed rate at 5.29 per cent with a 0.5 per cent fee (minimum £599) and a £100 administration fee.
National Counties Building Society offers a Family First Guarantor mortgage. If the child’s deposit is less than 25 per cent, a parent is required to act as guarantor – in a similar way to the Bath parental assisted scheme – by granting the lender an unlimited charge over their own main residence.
National offers a fixed rate until March 2015 at 4.89 per cent with a £495 fee up to 95 per cent loan to value.
Aldermore Bank mortgages,
For the essential guide for first-time buyers, go to
available through brokers, also has a family guarantee home loan that works in a similar way for borrowers with a deposit of less than 25 per cent. Two and three-year fixed rates are on offer, however the rates are high at 5.98 per cent.
Melanie Bien at mortgage broker SPF Private Clients says: ‘If parents do want to help, it’s important to seek legal advice, particularly if the lender is taking a charge over their property. Depending on the details of the guarantee, you may be restricted from borrowing in your own right until the restriction is lifted.’ Is the buy-to-let boom as safe
as houses? – Pages 78-79