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Families footing bill for first-time buyers
First-time buyers will be increasingly forced to rely on family to borrow money for a deposit now that mortgage companies are cutting the amount they are willing to lend, say experts
As the credit crunch rages, lenders are getting more and more nervous about bad debts, following recent experiences in the US which saw American banks lose billions where borrowers defaulted on home loans.
As a result lenders, including Alliance & Leicester and Britannia building society, now insist on a minimum deposit of 10% on the price of a property compared to 5% previously - so lending a maximum of 90% loan to value (LTV).
With the typical first-time buyer currently paying £147,834 for a home, it raises the cost of the minimum deposit from £7,392 to £14,784.
The credit crunch has also meant borrows have waved goodbye to many of the 100% mortgage deals that were designed for first-timers who could not afford to save a deposit.
In the past six months, 10 lenders have stopped selling mortgage deals where youngsters can borrow 100% of the value of the property.
"The problem for younger people getting on the property ladder is that they are paying out rent money while trying to save, which is difficult," said David Hollingworth at mortgage broker London & Country.
"Being young, you don't want to be watching every penny, you want to enjoy yourself. But with the market as it is, first-time buyers are going to have to rely on parents and grandparents for a helping hand if they want to become a home owner."
House prices are finally coming down after years of rocketing growth, which means many people still renting might be able to stretch to buying a place. But finding a bigger deposit presents yet another obstacle.
Economists are predicting that the Bank of England will certainly cut interest rates following the market turmoil this past week, by as much as 0.5%.
"This will help bring the cost of mortgages down, but lenders will still be careful about who they offer home loans, only accepting those with a decent deposit," said Hollingworth.
Some lenders offer mortgages to first-time buyers backed by a guarantor - usually a family member - for payments if the buyer defaults.
This is another way of helping out younger members of the family who cannot afford the mortgage on their own.
A slow in the number of first-time buyers spells bad news for the rest of the market because it means others will not be able to move up the ladder.
This is another way of helping out younger members of the family who cannot afford the mortgage on their own.
A slow in the number of first-time buyers spells bad news for the rest of the market because it means others will not be able to move up the ladder.
* Written by Holly Thomas. Holly is Deputy Personal Finance Editor at the Daily Express and Sunday Express. Holly's views represent her own opinions and are for general information only. Always seek independent financial advice.
