Newspaper article The Evening Standard (London, England)

THE KEY TO A NEW HOME; Now's the Chance for First-Time Buyers to Invest in a Home as Lenders Relax Their Restrictions and Offer Incentives to Borrowers, Says David Spittles

Newspaper article The Evening Standard (London, England)

THE KEY TO A NEW HOME; Now's the Chance for First-Time Buyers to Invest in a Home as Lenders Relax Their Restrictions and Offer Incentives to Borrowers, Says David Spittles

Article excerpt

Byline: David Spittles

COMPETITION is creeping back into the mortgage market, allowing first-time buyers on to the property ladder with much smaller deposits. Not only are lenders relaxing loan-to-value (LTV) restrictions, they are offering borrowers incentives such as free legal fees and home insurance.

Lloyds TSB's Lend a Hand mortgage now requires a deposit of five per cent and offers a rate of 4.79 per cent, which had been available only to borrowers with a deposit of at least 10 per cent. Yorkshire Building Society has announced that it will lend firsttimers up to 90 per cent LTV, up from 85 per cent, and is also dangling a package of fee waivers and sweeteners worth [pounds sterling]2,500.

Nationwide has revamped its range of first-time buyer mortgages and has special offers including cashbacks and refunds of survey and legal fees. Co-operative Bank has halved the fees and reduced the rates on its 90 per cent LTV fixed-rate mortgage range. The two-year fix is now 4.99 per cent, with a fee of [pounds sterling]499.

BUT BUYERS WITH BIGGER DEPOSITS STILL GET THE BEST

DEALS There are about 20 mortgage deals now which allow people to borrow up to 95 per cent LTV. This compares with six deals a year ago -- and 970 in July 2007.

A buyer with a 10 per cent deposit has a lot more choice -- there are 174 products open to them, compared with 77 a year ago and 763 three years ago.

The average pay rate for first-time buyers is 4.55 per cent.

Hannah Mercedes Skenfield, of website moneysupermarket.com, says 100 per cent mortgage deals are "still a long way off", though 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 their negative equity.

So, someone wanting to move from a [pounds sterling]200,000 property with a mortgage of [pounds sterling]220,000 would be [pounds sterling]20,000 in negative equity. If they wanted to trade up to a home costing [pounds sterling]250,000, the Nationwide loan would allow them to carry forward the [pounds sterling]20,000 negative equity, and lend them 95 per cent of the [pounds sterling]250,000 required to buy the new home, producing a total loan of [pounds sterling]257,500 -- [pounds sterling]7,500 more than the new property's value and 125 per cent LTV.

The sting in the tail is the interest rate, either 6.38 per cent or 7.68 per cent for a two-year or five-year fix, with extra (up to 8.18 per cent) for the top-up loan.

Moneysupermarket.com says up to 40 per cent of people looking for a home loan have a deposit of less than 25 per cent.

With interest rates at rock bottom, it is wise to think carefully about the type of mortgage you take out -- to cushion yourself against payment shocks. …

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