Finding the best mortgage deals

First-time buyers need to do their homework before applying for a mortgage - but the great offers are out there
Prosser twins Kelly, a receptionist, and bank worker Becci, bought a waterside flat with a 15 per cent deposit top-up deal
Prosser twins Kelly, a receptionist, and bank worker Becci, bought a waterside flat with a 15 per cent deposit top-up deal
The record low Bank of England base rate of 0.5 per cent has been kept on hold for two years, yet affordable mortgages are scarcer than ever, with lenders demanding unrealistically big deposits.

The latest Council of Mortgage Lenders figures show the number of first-time buyers falling to a record low last year - down to 198,000 from an average of 600,000 a decade ago - highlighting the plight of those trying to get on the ladder.

The average first-time buyer deposit has rocketed to £28,760, almost three times the amount 10 years ago. In London, £60,000 deposits are considered typical.

Mortgage offers of 100 per cent of the purchase price are a long way off, say brokers. Nationwide offers a negative-equity loan to first-time buyers who bought at the market peak and now want to move. The building society will lend 95 per cent of the price of the new property, plus a further 25 per cent to cover the negative equity.

There are 1,550 first-time buyer mortgage products on offer of which 471 deals are for 85 per cent (loan to value) or above. Lloyds TSB's "Lend a Hand" mortgage now requires a deposit of five per cent and offers a rate of 5.09 per cent, which had been available only to borrowers with a deposit of at least 10 per cent. The rate is fixed until May 2014.

Yorkshire and Clydesdale Banks also offer 95 per cent loan-to-value - at 6.99 per cent fixed until May 2014. HSBC has a cheaper 4.29 per cent tracker loan, with a small £99 fee for those with a 10 per cent deposit.

Lloyds Banking Group, which includes Halifax, has also launched an "Equity Support Scheme" allowing "trapped" borrowers to move to a property of the same value, buy a more expensive home or downsize without increasing their existing mortgage. Borrowers can use money saved as a deposit for the new property rather than having to use it to plug their negative equity gap.

Take someone whose home is worth £220,000 but whose mortgage is £260,000. They could trade up to a £240,000 home while keeping their mortgage as it is by using a £20,000 deposit they have saved. This has the effect of reducing the proportion of negative equity.

Mortgage applications: how to prepare

Buyers can boost their chances of getting a loan and coping with repayments by preparing themselves before the application.

1. You are more likely to get a mortgage if you have a savings record with a particular lender.

2. Not all loans are available through brokers. HSBC, which has some of the best deals, does not work with brokers, for example.

3. Study the best-buy charts and comparison websites.

4. The bigger the deposit, the lower the rate you'll pay and the more likely you are to be accepted by a lender.

5. Think carefully about the type of mortgage you take out: fixed, variable, tracker.

6. Take a fixed-rate loan to cushion yourself against future rises. They are more expensive than variable-rate trackers (which are linked to the Bank base rate), but you can sometimes pay less than three per cent for two-year fixes.

7. Use any disposable income you can spare to overpay your mortgage each month. This will reduce the outstanding amount and give you more equity.

8. Take a lodger if possible - you can make up to £4,250 a year tax-free under the "rent-a-room" scheme.

9. Ask housebuilders about mortgages. Some will help buyers where big deposits are a stumbling block.

Off to a flying start

Kelly and Becci Prosser, 22-year-old twins, clubbed together to buy their first home at Greenhithe, Kent, by taking advantage of a "Flying Start" incentive offered by developer Fairview which meant they had to put down only five per cent.

"It made all the difference," says Kelly, who works as a hotel receptionist. "We had been living with our parents and saving for three years but were unable to build up enough for the 25 per cent deposit required by lenders."

The sisters paid £164,000 for their two-bedroom waterside apartment, using a 15 per cent deposit top-up from Fairview which has to be paid back within 10 years or on resale of the property.

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