I am keen to buy my first property. I am in my mid-20s, in full-time employment and have managed to save about 5 per cent of the purchase price. What are my options?
The first thing we need to know is what your salary is and how much 5 per cent represents. Someone in their mid-20s earning £28,000 a year would be looking at a maximum loan of around £130,000 and so would have saved about £6,500.
To begin with, you will require a minimum deposit of 10 per cent or £13,000 to even be considered for a mortgage and in order to qualify for more competitive rates a deposit of 15 per cent is necessary.
Product choice will depend on attitude to risk and, in particular, over what timescale you feel the Bank of England will decide to raise the bank rate. Most first-timers opt for the security of a fixed rate in order to be able to budget a set amount each month.
Unfortunately, there is little in common between a BBR of 0.5 per cent and the rates currently available to firsttime buyers, which tend to be between 6 and 7.5 per cent for those with only a 10 per cent deposit.
So is there any scope to getting into the property market with just a 5 per cent deposit?
The Bank of Mum and Dad is often a necessity and, while parents can offer hard cash to supplement the deposit, they can also become guarantors to the mortgage
In England, Wales and Scotland, the answer is no, unless there are some generous relatives with 20 per cent to invest.
The fact that so many firsttimers need outside help to secure their first home means there are a growing range of products only available if
someone else can offer support. The Bank of Mum and Dad is often a necessity and, while parents can offer hard cash to supplement the
deposit, there is also the option of them becoming guarantors to the mortgage so, if a son or daughter is unable to keep up the mortgage they will be liable.
With one product, the parent or relative places a sizeable amount of savings into an account alongside the deposit, which then acts as additional security for the mortgage. Interest is still earned and the borrower can benefit from lower mortgage rates.
If no outside help is available, the potential borrower could also look at shared-equity or sharedownership mortgages, which have grown in numbers and popularity as more people find their finances do not measure up.
There are a variety of Government and housing association schemes that could allow a first-time buyer to purchase a percentage of the property while either paying rent on the rest or opting to share the proceeds when it comes to selling up.
All in all, the bare facts are that a potential first-timer is going to need significantly more than the 5 per cent deposit to get a foothold in the property market.
Options for supplementing this deposit should be explored and/or the various shared-mortgage options that are available. We are a long way away from the days of high loan-to-value mortgage lending and firsttimers are viewed as a much greater risk today than they were a couple of years back. The best advice may well be to wait and save.
Michael White is chief executive of Email Mortgages