Newspaper article The Evening Standard (London, England)

First-Timers Find a Way; Money: Squeezed out by High House Prices, Young Homebuyers Need to Be Inventive to Get on to the Property Ladder. Lorna Bourke Guides You through the Options

Newspaper article The Evening Standard (London, England)

First-Timers Find a Way; Money: Squeezed out by High House Prices, Young Homebuyers Need to Be Inventive to Get on to the Property Ladder. Lorna Bourke Guides You through the Options

Article excerpt

Byline: LORNA BOURKE

IT HAS never been easy to afford your first home. In the Sixties and Seventies you had to save for three years with a building society before you were even eligible for a mortgage. Today, the hurdle for buyers is how to borrow enough to buy the first property.

But things have changed, and many lenders are also adopting new eligibility criteria. According to Ray Boulger, of mortgage broker John Charcol: "More and more lenders are moving to credit scoring and affordability, and the effect of this is that buyers who are a good credit risk can borrow around four times joint earnings rather than only two-and-a half joint earnings under the old income multiple scheme. The actual amount depends on your credit score."

He recommends Northern Rock, Coventry Building Society, The One Account, First Direct, Halifax, Standard Life and Intelligent Finance as lenders that are prepared to consider larger-than-average loans for first-time buyers.

First-time buyers have a number of options to help them onto the ladder. To keep the monthly payments on a bigger loan to a minimum, you could go for an interest-only mortgage and revert to a repayment loan when earnings increase.

Keep it in the family

Some first-time buyers borrow part of the purchase price from family members, and repay the loan when they sell. Alternatively, ask parents to help out with a mortgage guarantee so you can borrow more. If parents are prepared to guarantee a mortgage, this allows the homebuyer to borrow more than the standard three-and-a-half to four times earnings, because parents' income is taken into account. For example, a homebuyer earning [pounds sterling]25,000 would be able to borrow a maximum of [pounds sterling]100,000. The borrowing power of parents with a joint income of, say, [pounds sterling]75,000 and a small mortgage, of, say, [pounds sterling]30,000 would mean the child could borrow as much as [pounds sterling]157,500 more. However, parents should be aware that if the child defaults on the monthly mortgage repayments, they are liable to pay.

The same applies where parents lend the ch i ld money and become joint-owners. If the child cannot pay, the parents will have to make the monthly repayments. "This is where offset loans are useful, because they allow parents to keep control of their money," says Boulger.

A number of lenders offer such "friends and family" offset mortgages, which will reduce costs and in some cases allow you to borrow more.

Members of the family forego interest on their savings, which is offset against the young homebuyer's mortgage repayments to keep costs down. Lenders offering an offset facility include Woolwich, Newcastle Building Society, and Cheltenham & Gloucester, which also allows the loan to be linked to deposits held at Lloyds TSB. …

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