Could First Time Buyers face hurdles in getting a mortgage? We offer some answers
As many first time buyers (FTB’s) seek to take advantage of the recently introduced stamp duty holiday, which was designed to help stimulate the housing market, there will undoubtedly be a more concerted effort to raise a deposit to buy, with some turning to Mum and Dad for support. But, as lenders start to apply stricter lending criteria’s and restrictions on deposits, could there be hurdles on the way to buying and, if so, what should FTB’s do to avoid them.
What is the government doing to help FTB’s?
The government has provided some great support to FTB’s in recent years and the latest stamp duty holiday is just one of them. It means that there will be a temporary halt (until 31 March 2021) on the standard-rate stamp duty for purchases below £500,000 in England and £250,000 in Scotland and Wales. Added to this with government schemes on offer, including the Help to Buy Equity Loan Scheme (which has only just been extended to enable first time buyers to buy a new build), there’s clearly some good reasons why first time buyers should consider making a move now. And, as house prices appear to be rising (*), it might be better sooner rather than later.
Is it becoming more difficult for FTB’s to get a mortgage?
Possibly. There’s high demand for mortgages and remortgages at the moment due, in part, to the stamp duty holiday and the pent up desire from new and existing homeowners to make a move following lockdown. To avoid being swamped with new applications, and to ensure their high customer service standards aren’t compromised, some lenders have chosen to withdraw some of their products as a result.
Unfortunately many of these are the high loan to value products, that require a smaller deposit, and which are favoured by FTB’s. It means that some FTB’s may find it harder to find a mortgage they can afford and it may be particularly difficult for those in the south of England where house prices, and corresponding deposits, can be higher. Some restrictions surrounding the deposit are also being applied.
Does that mean I can’t use a deposit from my Mum and Dad or close family member?
Some lenders are still accepting deposit contributions from family members but there’s been a recent move to restrict these. For example one lender recently announced that whilst they will accept a 10% deposit, 75% of this amount has to be raised by the FTB’s themselves. It’s possible that more lenders will follow this principle and is especially worrying as it is expected that even more FTB’s will be seeking the support of Mum and Dad this year.
As a First Time Buyer, what should I do?
There are definitely some lenders that will offer good deals to FTB’s but it can make the job of finding a mortgage harder - especially if you were thinking of doing it yourself.
It’s important to understand the bigger picture, what government support you may be able to get (and when), which lenders are more likely to offer a mortgage (and under what criteria) and also ensuring that you’ve taken into account all costs associated with buying a property - now and in the future. Its why gaining the support of a whole of market mortgage broker, rather than going to just one or two lenders on the high street, is so important. Some of these brokers may even have special deals with the main lenders that are not available elsewhere.
It is exciting to buy your first home but it’s really important that the steps to find one are planned and any potential hurdles anticipated so that the race to find one can be won in the best way and time possible. To do this, you might need help.
If you’d like to find out how Embrace Financial Services can help you simply book an appointment with a local ‘whole of market’ mortgage advisor.
(*) Nationwide House Price Index – August 2020