First-time mort­gage hunters should pro­ceed with cau­tion

Yorkshire Post - Property - - PROPERTY - Franz Muelthaler

There have been head­lines that sug­gest the num­ber of first­time buy­ers is at a six year high. There is no doubt that since the prop­erty de­pres­sion of 2007 the mar­ket has steadily im­proved. Ac­cord­ing to the Coun­cil of Mort­gage Lenders there were 42 per cent more first-time buy­ers in May than a year ago equat­ing to a to­tal of 25,100 first-time buyer loans ap­proved. Look­ing at the statis­tics alone we can see a sig­nif­i­cant shift as buyer con­fi­dence grows. Lenders are now of­fer­ing loans to first-time buy­ers with much bet­ter rates and LTV deals but the mar­ket isn’t awash with high LTV of­fers and I would still pro­ceed with cau­tion.

We have to re­mem­ber two things. The Govern­ment’s Fund­ing for Lend­ing and Help to Buy schemes are help­ing to bol­ster th­ese statis­tics but the schemes help peo­ple with low de­posits. Low de­posits or high LTV mort­gages are the rea­son why the prop­erty cri­sis hit hard. With fall­ing val­ues and in­creas­ing stan­dard vari­able rate mort­gages peo­ple were driven into neg­a­tive eq­uity and un­able to re-mort­gage to a bet­ter rate leav­ing some un­able to pay their mort­gages.

High LTV might seem like a good idea when you haven’t saved a size­able de­posit but re­mem­ber you will have lit­tle, if no eq­uity in the prop­erty and all it would take is for a re­turn­ing dip for the un­think­able to hap­pen – neg­a­tive eq­uity.

There are good deals avail­able and yes loan ap­provals are up; only last month Leeds Build­ing So­ci­ety launched a range of 0 per cent in­tro­duc­tory deals, across their five and three year fixed rate mort­gages, from 80 per cent LTV – 90 per cent LTV. Sounds good doesn’t it? We re­ally do have to be re­al­is­tic rather than blindly op­ti­mistic though. The re­al­ity is this type of of­fer isn’t across the board; in fact it’s quite unique.

Also if you’ve read the pa­pers lately you’ll know there have been re­ports of risky mort­gage lend­ing too. I don’t want to burst the bub­ble but I feel I have to re­it­er­ate a burn­ing ques­tion – can you re­ally af­ford it?

If you pay a 10 -15 per cent de­posit this means you are bor­row­ing 85 per cent – 90 per cent of a prop­erty’s value. This may seem like good news but re­mem­ber you will only own a small per­cent­age of your prop­erty. The up­turn is only rel­a­tive to our eco­nomic sit­u­a­tion, we are still ex­pe­ri­enc­ing a de­pressed mar­ket.

Con­tin­u­ing lack of job se­cu­rity, limited pay rises and the ever in­creas­ing cost of liv­ing means push­ing the boat out to se­cure an 85 per cent – 90 per cent LTV deal is po­ten­tially stretch­ing your af­ford­abil­ity lim­its.

Al­though prop­erty prices seem sta­ble it wouldn’t be pru­dent to think you are sit­ting on an ev­er­in­creas­ing in­vest­ment. Prop­erty isn’t nec­es­sar­ily al­ways go­ing to in­crease in price, the huge fi­nan­cial gains many prop­erty own­ers ex­pe­ri­enced to­wards the end of the nineties are highly un­likely to hap­pen again; leav­ing cur­rent high LTV pur­chasers with lit­tle eq­uity in their properties now and po­ten­tially in the fu­ture.

With no eq­uity or sav­ings to fall back on where would that leave you? It could leave you with a 100 per cent mort­gage and the need to re-mort­gage in the hope of se­cur­ing a bet­ter rate. Don’t be fooled by think­ing it would be easy to re-mort­gage. How many 100 per cent mort­gage deals are out there?

Im­prove your fi­nan­cial odds. If you are look­ing at a high LTV deal en­sure the mort­gage you se­cure is re-pay­ing the cap­i­tal loan not just the in­ter­est, and se­ri­ously think about over pay­ing if you have the ca­pa­bil­ity.

Also, don’t for­get about in­sur­ing your in­come against re­dun­dancy and loss of earn­ings through sick­ness, it is nowhere near as costly as the al­ter­na­tive. Above all en­sure you seek ad­vice. An in­de­pen­dent mort­gage ad­viser can guide you through the pros and cons,

Franz Muelthaler works for Hol­royd Miller Properties, Wake­field, in as­so­ci­a­tion with Reach 4 Mort­gage So­lu­tions.

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