The lack of availability of mortgage lending has been widely reported since the start of the Credit Crunch. Both first-time buyers (‘FTBs’) and other house movers have been affected as over two-thirds of mortgages currently available on the market call for a 20% deposit. With the average house price in England and Wales standing at around £160,000, a 20% deposit has been difficult to achieve for many house buyers, whether FTBs or ‘Second Steppers’.
Conveyancing solicitors over the past 5 years have seen a far higher proportion of house buyers being helped by the bank of mum and dad’ in lending or gifting funds towards the purchase price. This can amount to at least £20,000 for a typical FTB property. Even ‘second steppers’ have been unable to move for similar reasons – having bought their first home with only a 5% deposit, they will now need a 20% deposit for their next home.
For the majority of buyers who have to fund their own deposits, up until fairly recently the only option has been to save for a 20% deposit. Fortunately, this year has seen the introduction of some more initiatives which may be of help to some buyers:
- New buy– a scheme for all buyers (including FTBs) who want to buy a new build property for less than £500,000. A buyer can contribute a deposit as low as 5% while the developer’s lending partner will fund a 95% mortgage in the knowledge that it will be backed by a developer/government-funded scheme. There is a growing number of developers and lenders joining this scheme – so far 2000 buyers and 50 developers are now signed up. Check for participating builders on this link: (www.hbf.co.uk)
- First buy – this scheme caters for FTBs who are able to contribute 5% of the property value (although other individuals may be eligible, such as those who have suffered a relationship breakdown) and cannot afford a home in their local area. This scheme involves the contribution of a 20% Government equity loan which is interest-free for the first 5 years – buyers have the option of buying additional equity under staircase provisions. The equity loan is repayable on sale of the property or after 25 years. Contact your local HomeBuy agent for details.
- Funding for Lending (FLS) – Under this scheme lenders have signed up to borrow cheaper funds from the Government which in turn should allow them to make cheaper credit available to individuals and firms. Around 50 lenders have now signed up for this scheme and it is anticipated that this will improve mortgage availability over the next few months for home buyers. The Council of Mortgage Lenders has this week reported that gross mortgage lending reached an 11 month high in October and commented that the Funding for Lending Scheme may have made an early positive impact.
- Council mortgages – Local Councils are also keen to assist house buyers and boost the local economy. This has led some Councils (eg Warrington) to offer high loan to value mortgages to assist local buyers (subject to eligibility).
Although these schemes may make house buying more feasible in the current market, any house buyer needs to carefully consider the implications of committing to house purchase and obtain legal advice on any funding arrangements.