MORTGAGE SPECIAL
bringing the product into the mainstream of mortgage lending. While two-year fixes remain
unattractive, Chris Smith says Yorkshire is seeing demand for long term fixes increasing as customers look for security. “Our recent five-year fix has been well received,” he says; YBS offers five years at 3.99 per cent, and Chelsea at 3.49 per cent. An even longer term fix is available from the Co-Op Bank, fixing ten years at 5.29 per cent, up to 75 per cent LTV. Leeds Building Society offers a ten year fix at 80 per cent LTV, at a slightly higher 5.99 per cent rate.
The FirsT Time Buyer morTgage Meanwhile, one of the major issues in the UK housing market since well before the credit crunch has been that first time buyers are priced out of the market. Before the crunch, it was a simple matter of house prices being too high; now, as mortgage funding has dried up, it’s the difficulty of finding a 20-30 per cent deposit, which can easily be £30,000 for an average property in the south-east. FTBs accounted for 55 per cent of all house purchases in 1994, but this had fallen to 38 per cent in 2010. However the credit thaw does seem to
have reached the first time buyer at last. Michelle Slade says “A lot of the big names are coming back into this sector, so there’s more competition, driving prices down.” Moneyfacts shows 183 FTB mortgages available, against only 62 in June 2009, so the market has certainly broadened. Michelle Slade says though, “The main
problem is still getting a deposit together, especially with savings rates so low. Most lenders are looking at 10 per cent as a minimum, though there are a very few deals out there at 95 per cent.” That’s borne out by Moneyfacts; of 183 mortgages, only 31, less than a fifth, offer 95 per cent LTV. The government’s new FirstBuy scheme
(which takes over from the existing HomeBuy scheme, funding for which has now ended) is also targeted at the first time buyer. By putting a 20 per cent loan together with a 75 per cent LTV mortgage, it enables FTBs to purchase with only a 5 per cent deposit. However, FirstBuy is limited to new properties from housebuilders which have joined the scheme. Other ways of helping FTBs have been developed, such as shared ownership.
Yorkshire Building Society says it is there to lend.
22 AUGUST 2011 PROPERTYdrum
However, not all lenders offer mortgages on shared ownership properties; Ray Boulger says, “You don’t have as big a choice as in the main market.” One of the difficulties is the resale criterion, which may limit resale to local residents, those on low incomes, and so on. He believes any restriction on saleability is a major deterrent to many lenders, and this is why they’re giving the market a wide berth. However that hasn’t stopped some lenders from targeting the market, albeit generally at higher rates than for standard residential mortgages. Leeds has recently launched a number of fixed rate deals for shared ownership, trimmed its arrangement fees on them and offered free valuations. The equity loan scheme, on the other
hand, has become more popular with some lenders than true shared ownership, where the housing association retains a stake in the property. With equity loans, the purchaser gets 100 per cent ownership, but takes out a second loan to provide the difference between the mortgage amount and 95 per cent of the property value, typically, 75 per cent mortgage, 20 per cent equity loan, and five per cent deposit. Castle Trust is currently planning the
launch of second charge mortgages to facilitate purchase, which look similar to the equity loan scheme. Its Partnership Mortgage charges no interest, but is linked
to any increase in the value of the property; it is available on 20 per cent of the purchase price. Castle Trust will take 40 per cent of any increase in value, and share 20 per cent of any loss. Ray Boulger says, “Whether it ends up
cheaper or dearer than a straight mortgage depends on how house prices move,” John Charcol’s research suggests it will break even at a 3.75 per cent annual rise in house prices, but if prices rise by more than that, borrowers could lose out. However, he doesn’t think it will be a great product for FTBs; instead, “for movers, it means you can get a more expensive house for the same monthly outlay.”
The guaranTor morTgage Another type of mortgage aimed at the first time buyer is the guarantor mortgage. Catherine Hearnden says, “These mortgages weren’t there before the crash, they didn’t need to be. Lenders would lend on 100 per cent anyway, and in fact it’s very difficult to enforce against a guarantor, unless they have part ownership.” She says that although guarantor mortgages can help, the income multiples and affordability calculations are quite strict, and such mortgages don’t account for more than a single percentage of the market. “In fact, the Bank of Mum & Dad is more important as a source of deposits than it is for underwriting guarantees,” she states.
We nearly tripled our lending in 2010, and aim for a further 50% this year.”
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