It looks likely that this year lenders aided by the governments ‘Funding for Lending Scheme’ are likely to be more active than last year. The scheme that was launched at the end of 2012 has brought about lower interest rates, but in itself this is not enough to move the market much if lenders continue to look for big deposits from first time buyers. However since the turn of the year I have sensed more aggressive behaviour from lenders as they try to gain market share.
During 2012 95% mortgages have been available for first time buyers provided they buy a new property. This is known as New Buy with banks lending providing the government and the house builder’s guarantee 9% of the loan. So if the government lenders and builders are happy, why should borrowers be concerned? For a start the guarantees are for the lenders, and often a New Buy property, although attractive at purchase can cause heartache when the property is being sold. The reasons for this are that only 1 in 4 consumers would choose a house built in the last 10 years, because, as the Future Home Commission points out, there is not enough space in the rooms and not enough natural light.
So although New Buy can help people on the housing ladder with smaller deposits making them an attractive purchase, there maybe difficultly selling if the views of many people are borne out by the research that is referred to above. If you are going to live in a New Buy property for many years then the criticisms become less important as the new house, even with its drawbacks, will likely gather equity? This equity will then allow you to move if you wish. But if you have to move on fairly quickly selling could be a problem, as often quite soon after an estate is built young people in particular may want to move on. So you could find yourself with a very similar property to a number of your neighbours who may want to sell at the same time. Generally in established areas you don’t get the same concentration of sales, but unfortunately this concentration on new estates could drive second hand prices down as purchasers play one vendor against the other.
I find it encouraging that 2013 could be the year that first time buyers without big deposits will be able to choose what age of property they will buy. As mentioned earlier, lenders could have more of an appetite for measured risk this year, and they are now prepared to offer 95% mortgages on second hand properties without government guarantees. The Newcastle and Melton Mowbray building societies offer straightforward deals but have relatively high rates of interest that start at 4.79%. These rates are perhaps are reflecting the added risk. Also, we are getting other lenders that will lend 95% with family guarantees with The Scottish Building Society even allowing students to access 95% mortgages. Perhaps the most attractive of the Family Guarantee Schemes is The Woolwich Springboard account that allows borrowers 95% mortgages with a competitive 4.69% fixed rate, with variable rate of 4.49% afterwards and a maximum application fee of £499. To obtain this a family member has to deposit 10% of the purchase price for 3 years that pays bank base rate plus 1.5%. Provided the mortgage account has been conducted satisfactory the money is returned after 3 years and the mortgage reverts to the standard rate.
Although the 95% loans for first time buyers could be better priced, I get the feeling that the lenders have got the message that they have to innovate with regard to first time buyers if they are ultimately going to achieve an ordered balanced market for them, that included second hand houses as well as new ones.
Kieron Bassett Financial Services has two Independent Financial Advisers who specialise in mortgages and investment advice. Contact us on (01524) 832057, via e-mail, info@kieronbassett.com, or visit www.kieronbassett.com.
Kieron Bassett DipPFS
21st January 2013
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