High LTV deals are disappearing fast as lenders move away from what they regard as high-risk business in favour of those with big deposits or sizeable amounts of equity in their homes. It is no longer possible to borrow 100 per cent LTV and above.
In a market where prices are falling, this is prudent as negative equity would be a certainty. But lenders are further reining back from 95 per cent LTV. Lenders such as Alliance & Leicester, Britannia and Cheltenham & Glou-cester no longer lend above 90 per cent LTV and it is likely that other lenders will follow suit if the liquidity squeeze continues for much longer.
If parents of first-time buyers felt under pressure to help their offspring on to the housing ladder before, this will only be magnified in the current market. Without a deposit, it is impossible to get a mortgage while the best rates are increasingly only available to those with at least 25 per cent to put down.
The problem parents face is that they may themselves be under pressure financially. It is all very well releasing equity in their home to help out the children with their deposit but if this pushes their LTV above 75 per cent, they could be penalised in future with higher rates.
The Government is trying to assist by improving Open Market HomeBuy, its shared equity scheme. Assistance is available to key public sector workers, social tenants or those on council waiting lists and other priority first-time buyers.
The new schemes – Ownhome and MyChoice HomeBuy – simplify the choice available and should help more of those who are struggling to climb on to the property ladder.
Those who qualify can access an equity loan of up to 50 per cent of the property’s value. Applicants can choose their own mortgage from any on the market or take one offered by the Co-Operative Bank, depending on the scheme they opt for.
Although shared equity schemes have been criticised in some quarters, with critics arguing that it is better to own 100 per cent of a property than a share of it, the demise of high loan to value deals means that this is more difficult than ever.
The shared equity scheme means a family with a combined income of £35,000 could get a mortgage of £120,000. Under MyChoice HomeBuy, they could potentially buy a home worth £240,000.
The Social and NewBuild HomeBuy schemes remain, enabling purchasers to buy as little as 25 per cent of the property via savings and a mortgage.
The remaining share is usually held by a housing association. Social HomeBuy enables existing tenants of local authorities and housing associations to buy a share in their home at a discount.
As with the right to buy and right to acquire schemes, there is a discount available on the purchase price (depending on the local authority in which the property is located), calculated pro rata to the share being bought. Tenants can purchase a minimum initial share of 25 per cent of the property, with the remainder of the equity retained by the landlord.
Despite these initiatives, until liquidity returns to the money markets, it looks as though first-time buyers will be the group who is hardest hit.