Low deposit mortgages are gradually returning to the market, but challenges remain for first-time buyers. Trussle’s Miles Robinson offers some advice on how to improve your chances of getting approved by lenders during these trial periods
First-time buyer activity is critical to keeping the property market moving. However, it has been a challenging year for many as 69% can no longer afford their purchase.
In fact, it is estimated that the difficulty first-time buyers face when buying their first home is a whopping £ 5 billion worth of real estate deposits floating in the air.
The financial impact of the pandemic has resulted in lenders pulling out a range of high-lending value (LTV) mortgages, meaning first-time buyers with smaller deposits have few options.
92% of all 90% LTV deals have been taken off the market since March, narrowing the window of opportunity for buyers with a 10% deposit.
In addition, the economic climate and the introduction of the government’s vacation program led to a tightening of the criteria and increased scrutiny of all applications.
For the past six months, for example, Nationwide has capped free deposits from The Bank of Mum and Dad and TSB has refused to accept suspended receipts on applications – just two examples of local lenders cracking down on them.
In addition, the introduction of the stamp tax led to an increase in demand for real estate and thus also real estate prices.
We’ve seen a month-on-month increase as shoppers struggle to exceed the holiday deadline for stamp duty.
Demand from buyers has resulted in such a backlog in applications that our data shows that it currently takes around 115 days to complete a property in the UK. This also has an impact on property prices, which rose 7.6% over the past year.
As home prices continue to rise, first-time buyers have no choice but to increase their deposit amount or seek financial help from family and friends. However, our research shows that over half (53%) of first-time buyers today buy in a city or suburb, with 12% choosing a village and 6% choosing a rural location.
This shift away from the cities could be due to lower regional home prices that allow first-time buyers to purchase a home with a lower down payment. This can be seen on the regional map of Trussle with the different deposits of first-time buyers.
But there is light at the end of the tunnel. We’re starting to see lenders reintroducing higher LTV mortgage products, giving hope to first-time buyers looking to climb the ladder with a lower deposit.
While the supply of high LTV products is still significantly inferior to pre-pandemic levels, the market could become more accessible to first-time buyers in the next few months if this trend continues.
If you are looking to buy your first property, we have the following tips for you to increase your chances of getting a mortgage that is right for you:
Save on your deposit
It’s important to understand that the total number of mortgages on offer has decreased, especially for those with smaller deposits who are aiming for a 90 or 95 percent mortgage loan (LTV).
If you are able, you should try to use this time to save more for a deposit of at least 10%. Cut down on expenses whenever possible and use a budget planner to manage your monthly expenses. Ultimately, this could mean that you can save more money on your dream home.
Shop around for the best deal
Finding and securing the right mortgage can seem daunting, so it is important to take the time to ensure you are getting the best possible deal for your circumstances.
Don’t let the ones with the lowest aggregate rates lure you in, as product fees or other hidden fees can be high.
Using a mortgage broker will help you find the right deal for your situation, taking into account monthly repayments, additional fees, and cashback. Trussle has access to more than 12,000 offers from 90 lenders and will find the most suitable offer for you based on your personal and financial situation.
Plan for additional costs
Remember that there are additional costs associated with buying a home. So remember to plan for contingencies. Some examples of these costs include moving services, maintenance and repairs, and additional legal fees.
It’s also important to keep in mind that the stamp duty vacation ends on March 31, 2021 and the average waiting times now exceed the time remaining until the end of the holiday. We encourage those saving for a deposit to budget for stamp tax if necessary to avoid unexpected costs.
Be smart with your finances
Buying a home is a huge financial commitment, and mortgage lenders will want to see that you are a trustworthy borrower. Close unused bank accounts and pay off your credit card each month to check your creditworthiness and increase your chances of getting a mortgage.
If you haven’t already, then you should check out government sponsored programs to really maximize the amount of money you are storing.
Find out what you can afford
A mortgage in principle (also known as a decision of principle or agreement) is a statement, usually from a lender or mortgage broker, that states that you may be able to borrow a certain amount of money.
Securing a mortgage, in principle, allows you to have realistic expectations about what and where you can afford so that you will not be disappointed later. You can get a free mortgage in principle from Trussle online in minutes.
Additionally, using an affordability calculator is a great way to understand what you can afford so that you can consider your expectations from the start.
Miles Robinson is Head of Mortgage at Online mortgage broker, Trussle