Boost in first-time buyer options is good news for brokers

Your first-time buyer clients need help to navigate the growing number of routes onto the housing ladder

First-time buyers are the engine of the housing market, and the Government wants to help them onto the ladder.

The latest initiative, the Mortgage Guarantee Scheme, aims to help them over the deposit hurdle by widening access to 95% mortgages.

It’s the latest of an array of schemes that could help first-time buyers onto the ladder or boost their buying power. But brokers’ expertise is vital to help them navigate the complex mortgage market.

Here are five first-time-buyer-friendly options you can explore with them:

1. Mortgage Guarantee Scheme

The Government’s new Mortgage Guarantee Scheme launched in April to help homebuyers without a large deposit purchase a property with a 95% mortgage.

It’s available on purchases and remortgages of sole residential properties up to £600,000. The borrower needs to have at least a 5% deposit and meet the lender’s affordability criteria.

Some of the UK’s largest lenders, including Virgin Money, have committed to the scheme, creating a range of options for customers looking for a 95% LTV deal.

2. High LTV bounce back

The announcement of the Mortgage Guarantee Scheme alone was enough to boost the 95% mortgage market.

The availability of high LTV mortgages is improving by the week, with the number of 95% and 90% mortgages having already grown significantly since the start of 2021.

According to Moneyfacts, there were 779 90% LTV mortgages available on 1st March 2020, which fell massively to 62 by September 2020, but was already back up to 434 by the end of March 2021.

Of course, affordability is about much more than the deposit size and lending criteria may be restricted. Clients need help to work out their mortgage eligibility, meaning broker advice is vital.

3. The new Help to Buy scheme

The new Help to Buy Equity Loan 2021-23 scheme in England, including London, is exclusively available to first-time buyers purchasing a newly built home.

Scotland and Wales have their own schemes with different rules and scheme end dates.

The borrower must provide at least a 5% deposit and can secure a mortgage up to 75%. A Government-backed equity loan of up to 20% of the property price will then need to be secured. In London, the max equity loan is 40%.

After the first five years there will be a monthly fee for the equity loan if your new home is in England, London or Wales.

The schemes can only be used to buy a home up to a certain value, with regional caps in place across England. This is to help target the scheme to those who wouldn’t otherwise be able to get on the ladder.

Not all lenders participate in Help to Buy schemes but Virgin Money does. We’re happy to talk you through how these mortgages work and the ways we can help your clients.

4. Shared ownership opportunities

With a shared ownership scheme, buyers purchase a portion of a property from a housing association or registered provider – usually between 25% and 75%.

They make mortgage repayments on the portion they’ve bought, plus pay rent to the housing association or registered provider on the rest.

Borrowers have the option to step up to full ownership – called ‘staircasing’ – by purchasing shares of a minimum 10% of the value when they are able to do so.

The Government wants to make shared ownership easier to access. Under the new proposals, buyers will be able to purchase their home with an initial stake of just 10%, instead of 25%.

Owners will then be able to buy further shares in their home of just 1%, instead of a minimum 10%.

Housing Association or Local Authority tenants will also have new rights and options to buy their home.

Virgin Money offers shared ownership mortgages across the whole of England and Wales, on houses and flats, including new build homes.

5. The Bank of Mum and Dad

Parents and other family members are increasingly helping first-time buyers onto the ladder. The simplest way is to gift them money towards a deposit, but that’s not always possible or desirable.

Another option is a guarantor mortgage, where a family member guarantees to cover the repayments for a first-time buyer. These mortgages differ hugely between providers, so make sure you explain the responsibilities of both the borrower and the guarantor on any particular deal. If necessary, signpost them to legal advice.

With a joint mortgage, all parties on the mortgage are jointly responsible for the whole mortgage, along with the first-time buyer. They may incur Stamp Duty and Capital Gains Tax if they already own their own home. However, some lenders, including Clydesdale Bank, offer a ‘joint borrower sole proprietor’ option which means only the borrower owns the property. Again, signpost the buyer and family member to legal advice to ensure they understand their obligations.

A helping hand

Talking your first-time buyer clients through all their options at an early stage will help them find their right path onto the property ladder. And doing so could secure you a customer for life.