Home help

By JUSTIN HARPER FOR MAILONLINE
Updated: 19:00 EST, 20 August 2003

LENDERS are coming up with ever more inventive ways to help first-time buyers take their first step on to the property ladder. With national house prices rising 56% since 2000 and the average deposit now close to £20,000, thousands of would-be homebuyers are being deterred from entering the market.

Figures released by Halifax show that first-time buyers are at their lowest level since records began in 1974. There were just 174,000 first-time buyers in the first six months of the year, compared with 253,000 for the same period last year.

But lenders are now responding to the problems faced by those just starting out. This month Newcastle Building Society launched a Guaranteed Offset home loan, allowing parents to link their savings accounts to their children's mortgage.

It works like a normal offset mortgage in that you can use savings to reduce the amount of interest you pay on the mortgage. For example, if you took out a £100,000 mortgage and had £10,000 of savings, you would pay interest only on a £90,000 mortgage.

While parents still own their own savings they must tie them up for five years. The other drawback is the interest rate - a fixed rate of 4.89% for five years. On a £100,000 25-year repayment mortgage monthly repayments are £578.

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The couple had some trouble securing a deal because Adam, although he owns a window installation firm, is classed as self-employed. Jenny, who works in investment marketing, says: 'Companies could do more to help first-time buyers now that houses are so expensive, such as lending more money over longer periods.'

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But with £10,000 savings offset against the loan, the repayment period would drop to 20 years and seven months. (You cannot actually reduce your monthly repayments.) This rate can be bettered by Alliance & Leicester's five-year deal of 4.15% (5% deposit needed). This is not an offset, but repayments on a £100,000, 25-year mortgage would be £542.

Woolwich has an Offset Together mortgage which allows up to 11 family members to link their savings to an offset mortgage. Parents' or grandparents' money is kept separate, leaving them free to withdraw it at any time. The actual mortgage is a tracker that runs at 0.85% above base rate for the lifetime of the loan, putting it currently at 4.35%.

On a £100,000 repayment mortgage monthly repayments are £553. Leeds & Holbeck Building Society's First Steps mortgage allows parental income to be used to secure a mortgage.

Most lenders work on income multiples of about three for a single person and two-andahalf for a couple. So if you earn £25,000 you could borrow £75,000 on your own.

But if your parent earns £50,000 you could borrow £150,000. The parent doesn't pay the mortgage but their income power is used to get a bigger one.

The mortgage is a five-year stepped fixedrate deal which can be taken out with a 5% or 10% deposit.

The rate is 3.99% for two years then 4.99% for the next three years if you put down a 10% deposit. For a 5% deposit the rates are 4.49% then 5.49%.

The drawback for parents guaranteeing a mortgage is that if the child defaults on payments they become liable to repay it.

Scottish Widow's graduate mortgage requires no deposit and does not charge Mortgage Indemnity Guarantee (Mig) - an insurance you pay to protect the lender if the house is repossessed and sold at a loss.

While a parent can act as a guarantor, they need only to show that they can cover the part of the mortgage the child cannot cover. You can take out the mortgage as a tracker (1.25% above base rate for life) or stepped fixed rate (starting at 3.89% then rising to 4.8% over five years).