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You Are Here: Home > Personal Finance > Mortgages > FAQs > Question & answer
First Time Buyer Mortgage Help
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The credit crunch has had 2 main effects on the mortgage market -

  1. Massively reduced the amount of money being lent, and
  2. Forced buyers to put up ever larger deposits, most lenders will require a minimum of 10% even 30% in order to get the best mortgage deals

This is the main problem for 1st time buyers but is hasn't always been like this. Before property started falling in value in around 2007 many lenders were only too happy to grant 100% mortgages (100% of the cost of the property is borrowed) and some went as high as lending 125%.

But from 2007 onwards most lenders want at least a 10% deposit otherwise qualifying for a mortgage is going to be tough. But if you don't have 10% yourself then here are some other strategies to think about.

Borrow money directly from your family
Not always possible of course but family members can sometimes help pay for some or all of a deposit. This can be done a few different ways -
  • A gift, although there might be tax implications as the taxman doesn't like people giving large sums of money away without getting his take
  • A soft loan where the interest rate is either very low or zero. For example, a £20k loan over 10 years with the interest rate set at the current rate of inflation (averages around 2% but can spike a lot higher)
  • The family member(s) takes a stake in the property, for example if it's worth £100k and they lend £10k, 10% of the property belongs to them
Innovative mortgages offered by the Building Societies
For some reason the Building Societies are often more creative in designing different mortgages than the banks. For example the following 2 deals, which possibly may not still be offered. If they're not currently available then I'd expect other lenders (again, probably the Building Societies) to offer similar deals, so check around.
  • The Chelsea Building Society's 'Helping Hand Package'
  • This is where the salaries of up to 3 family members are taken into account when granting a mortgage
  • So if you earn £30k and one of your parent's earns £50k then it's possible to be offered a mortgage 3-4x the combined salary of £80k
  • The Yorkshire Building Society - Offset Plus mortgage
  • This is an offset type mortgage where the savings of family members are taken into account
  • For example, you want to borrow £100k and have no deposit but your Father and Uncle have savings of £20k
  • The £20k is paid into a deposit account with the Building Society and is used to reduce the £100k mortgage to £80k
  • The savings will still be in the Father's/Uncle's name
  • More on what offset mortgages are, how they can help as well as their pros and cons
  • The Stroud & Swindon Building Society 'Buy to share option'
  • The government has a 'rent a room' tax-free scheme where a homeowner can rent a room in their property and receive up to £4,250 a year tax-free - more details
  • The 'buy to share' mortgage enables people to borrow 3x the rent, so assume you're receiving £4,250 that's an extra £12,750 in mortgage borrowings
See what the mortgage brokers can offer
  • Just because most lenders are apprehensive about lending up to 100% of a property's value it doesn't necessarily mean they won't
  • So use this guide - how to find the right mortgage at the best price - when contacting at least 3-4 different mortgage brokers
Summary
The mortgage market is tough right now for 1st time buyers who don't have at least a 10% deposit. But that doesn't mean it's impossible to get a loan if you put your mind to it and start talking to the banks, building societies and mortgage brokers. The worst they can say is no.
FREE Report: How to get the right mortgage at the best price
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How to make sure you don't overpay on charges
Learn to quickly sort through the market maze
How to get a flexible deal - why this is so important
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