At last week’s Mortgage Expo in London, John Charcol senior technical manager Ray Boulger called on advisers to “use their brains” in choosing the best mortgage options and cautioned against relying too heavily on sourcing systems to find the best deal.
He said: “It is a skill for brokers to know which lenders are is worth talking to and with who to place the case. Getting the right product can make a big difference.”
What do the experts think are the best options for firsttime buyers at the moment?
Boulger backs trackers, shared equity mortgages and parental help and is not impressed with higher lending charges and short-term fixes.
Moneysupermarket.com head of mortgages Louise Cuming says many 100 per cent plus LTV products are still available, including 125 per cent deals, but advisers should be cautious. She says: “If you turned the clock back 18 months, I was a strong advocate of these products then. If a client comes straight from university without cash and is determined to stay in a property for a few years they can be a good way to start but we are already starting to see some areas where property prices are flattening out or falling.”
She recommends fixed-rate deals, saying trackers may not be the best option if a buyer is pushed on affordability. She says despite indications of cuts in interest rates, the long-term future for bank base rate remains uncertain.
Cuming says: “The credit crunch really hit us and who knows what will hit in 2009? Those that borrow right to the edge of their limits should not gamble on the rate.”
London & Country mortgage specialist James Cotton says it is difficult to define an average first-time buyer but he has been impressed by some options on the market. He says those looking for a high LTV might consider the likes of Scottish Widows, Bristol & West and the Bank of Ireland. He aconsiders that Widows has a good range of graduate, professional and key worker schemes without the high lending charges associated with some other providers.
Hallmark-IFA adviser Wayne Unsworth says the ideal mortgage product depends on individual circumstances of the first time buyer and access to funds. He says: “If they have a decent deposit, then I would recommend they find the best rate available, usually a fixed rate.”
He says FTBs should look for deals with a low fee structure and providers with good service. He says: “Everyone has got a different opinion but ºa first-time buyer should get something where they know exactly what they will be paying each month. Your choice should be research-driven and there should be no excessive fees on the key rates.”
Innes Reid Investments adviser Craig Kennedy says advisers should look at interest rates and low deposit options for FTBs. He says: “I would recommend those with cheaper interest rates. We ask clients to put down a 5 per cent deposit, where they would have more choice and a greater selection of lenders. Those without a deposit have limited opportunities and are charged more for the increased risk.
Cuming believes a shared equity mortgage is well worth consideration. The alternative is buying a property which is more likely to require repairs and having to upgrade as affordability improves. She says: “It means that buyers can go for a newbuild and buy more into the property as time goes by without the need to move. The only downside is there are not huge number of properties in that market.”
Cotton points to the Government-backed OpenMarket HomeBuy scheme, which offers key workers and social housing tenants identified as priority first-time buyers as another option. He says: “Not everyone is eligible for it but this joint venture between product providers and the Government offers a good equity loan.”
There are also many deals which help FTBs who benefit from family assistance. Parents are often able to help their children as the equity in their homes has risen.
Boulger says: “Parents’ savings can be linked to the child’s mortgage as well as the borrower’s savings offset against it. This is a very taxefficient way for parents to help while staying in control of their capital. They will be giving up the net interest on their savings while helping the child by decreasing the amount of interest they have to pay on their mortgage.”
Needanadviser.com IFA Ashley Clark agrees parents are increasingly useful. He says: “Parental help is necessary today. Especially in London, it is difficult for younger people to get on to the property ladder without help from their parents or grandparents. They have been fortunate enough to have had property booms over the last 40-50 years and are in good position to help.”