Lenders are being more flexible on their criteria by swallowing certain charges, such as legal fees or survey costs. Some lenders will also add the cost of the application, arrangement or completion fees onto the mortgage. This means the borrower doesn’t have to stump up a lump sum but can pay the cash back over a number of years. It does mean there is interest to pay but if there's no other way of getting on the housing ladder, it may be worth it.

Other lenders offer cashback to help affordability in the early months but be wary of such deals as they have stiff early redemption penalties for the first several years and are unlikely to have the cheapest mortgage rate.

Interest Only

A better alternative may be to opt for a loan that lets you pay just the interest in the first couple of years before reverting to a repayment deal. Although payments will jump significantly when this happens (and you need to budget to allow for this), the entire mortgage is repaid by the end of the term so it's a secure way of doing things and can help in the early years when money is tight.

The main problem first-time buyers face is lack of deposit. Some lenders will lend 100 per cent of the purchase price – and above - so you don’t have to put down any deposit. The downside is that some lenders impose a higher lending charge (HLC) in such instances; this insurance covers the lender in case you default on your repayments. However, many lenders have stopped charging a HLC so ask an independent broker such as Savills Private Finance (SPF) which ones you should avoid.

The other problem with having little or no deposit is that lenders charge a higher rate of interest than they would if you put down say, 5 or 10 per cent of the purchase price. One way of generating a bigger deposit may be to ask family if they can lend you some money.

Affordability

Another problem is raising enough cash in the first place. As mortgages are calculated on income multiples – up to four or five times single income - a first-time buyer on a low wage may not be able to get a big enough mortgage. But a guarantor mortgage, which enables you to borrow more than you could have done on your own because your parents' salary is taken into account, may solve this problem.

Help from the parents

A guarantor mortgage, which enables you to borrow more than you could have done on your own because your parents' salary is taken into account, may solve the problem of not being able to get a big enough advance to buy the property you want. Lenders will consider a guarantor mortgage on most of their products but while it is tempting to borrow as much as the lender will let you have, this isn’t always wise. Make sure you don’t overstretch yourself so that you end up defaulting on the payments.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

(March 2007)