How to find ninety-five per cent mortgages
First the bad news: last year the average deposit put down by London’s first-time buyers was a scary £57,175, according to new research from Halifax.
This was £26,639 more than the national average deposit saved by first-timers and has led to despair for two generations of Londoners — grown-up children worried they’ll never be able to move out of their parents’ home, and parents worried they’ll never be shot of the kids.
The good news is, it may be an average, but it’s not a minimum. First-time buyers can still get on the property ladder with much lower savings than the “average” deposit. The repayment rates may be higher but 95 per cent mortgages are still available if you know where to look - meaning homes can be secured in cheaper areas of London for far less than a £57,000 deposit. To get an idea, visit money.co.uk and find the 95 per cent mortgages section.
Many of the 95 per cent deals are under the Government’s New Buy scheme where the state and house builders together guarantee mortgages where buyers put up just five per cent of the home’s deposit.
How much can you afford to pay?
So the first step is to work out what you can afford. First-time buyers will need to take a capital repayment mortgage, so tap your details into a home loan calculator, such as this one run by Nationwide (nationwide.co.uk/mortgages/calculators/howmuchborrowafford.htm).
It will also show you how much you would be paying off each month, to work out whether the remainder would cover your living costs.
A guarantor mortgage may be another option. These take into account someone else’s income - usually a parent’s - on top of your own, as long as the parents can still cover their own mortgage.
The parents are not listed as owners (to prevent tax problems) but they are liable for repayments and arrears, meaning lenders feel more relaxed about offering a home loan, and cut the minimum deposit and potentially interest rate, too. It’s also possible for guarantor mortgages to cover just the extra portion of the mortgage above the amount covered by your income.
Shared ownership is another key way of getting around the £57,000 figure. As rents soar, this scheme offers buyers the chance to own a portion of their home - there’s a minimum requirement of 25 per cent - while paying rent on the rest.
Learn more about schemes in your area and register via the Government’s First Steps website (firststepslondon.org). Properties involved are either brand new or being sold by existing shared owners. And the rent on the outstanding share is set at a maximum of 3 per cent of the value of the share.