FIRST-TIME buyers have one less option when it comes to getting a mortgage without a deposit as Aldermore has axed its family guarantee deal after eight years.
The specialist lender had dished out the 95 per cent 100 per cent mortgages since September 2011.
Instead of first-time buyers having to save up for a deposit, the loan was given on the condition parents guaranteed 25 per cent of the property’s value using their own home.
At the time they were pulled, the mortgages were available as two-year and three-year fixes at 5.18 per cent, and as a five-year fix at 5.28 per cent – each with application fees of £299 and product fees of £999.
Why aren’t 100 per cent mortgages popular?
Aldermore says first-time buyers instead prefer to use high loan-to-value mortgages where you save a small deposit and take out a standard mortgage for the remainder.
It also points out that first-time buyers are leaning towards the government’s Help to Buy equity loan scheme too.
Here, the government lends up to 20 per cent of the home’s value – or 40 per cent in London – as long as you’re buying a new build and you put down at least a 5 per cent deposit.
According to Aldermore, the latest figures from industry trade body UK Finance reveal that of 32,218 first-time buyer loans taken out across the UK in October 2019, just six were guarantor mortgages.
Existing Aldermore borrowers are unaffected.
What help is out there for first-time buyers?
GETTING on the property ladder can feel like a grim task but there are schemes out there to help first-time buyers own their own home.
- Help to Buy equity loan – The Government will lend you up to 20 per cent of the home’s value – or 40 per cent in London – after you’ve put down a five per cent deposit. The loan is on top of a normal mortgage but it can only be used to buy a new build property.
- Lifetime Isa – Another Government scheme that gives anyone aged 18 and 39 the chance to save tax-free and get a bonus of up to £32,000 towards your first home. You can save up to £4,000 a year and the Government will add 25 per cent on top.
- Shared ownership – Co-owning with a housing association means you can buy a part of the property and pay rent on the remaining amount. You can buy anything from 25 to 75 per cent of the property but you’re restricted to specific ones.
- “First dibs” in London – London Mayor Sadiq Khan is working on a scheme that will restrict sales of all new-build homes in the capital up to £350,000 to UK buyers for three months before any overseas marketing can take place.
- Starter Home Initiative – A Government scheme that will see 200,000 new-build homes in England to be sold to first-time buyers with a 20 per cent discount by 2020. To receive updates on the progress of these homes you can register your interest here.
Nick Morrey, product technical manager at broker John Charcol says the problem is these guarantor mortgages are complicated and can often work out more expensive for first-time buyers.
He said: “They are relatively complicated to actually underwrite compared to normal mortgages as they have either guarantors and/or they use equity in a close relative’s property to get approval.
“As a result, the cost of administration is higher and so the products are often more expensive to reflect the work required.”
He adds that the other issue is such schemes rely on first time buyers having parents who have lots of equity in their property in the first place, and who are willing to put up a sizeable proportion of their home for their child.
Jon Cooper, head of distribution at Aldermore said: “There appears to be little demand for this type of product in the market currently, and we are seeing new buyers greatly favour high loan-to-value or Help to Buy equity loan options.
“We continually review our product range to make sure we are providing customers with the facilities they need. For now, we are concentrating on improving our mortgage products that remain popular amongst first time buyers.”
Can I still get a 100 per cent mortgage elsewhere?
Other providers are still offering 100 per cent mortgages.
Lloyds Bank‘s Lend a Hand mortgage and Halifax‘s Family Boost mortgage offer deposit-free deals for first-time buyers, as long as a family member stumps up 10 per cent, which is later repaid by the banks plus interest.
How to find a mortgage broker
A BROKER will typically cost between £300 and £400 but could help you save thousands over the course of your mortgage.
You need to be able to trust your broker, so it’s worth checking with friends and family whether they can recommend any.
If they aren’t able to, you can use Google to search for mortgage brokers.
Just make sure you look for an independent, whole-of-market broker, meaning they have access to the widest possible range of mortgage deals and not just a select group of lenders.
Once you’ve found one, double-check that it’s properly qualified by checking the Financial Services Register.
This year also saw Barclays extend its no-deposit Springboard mortgage deal for homes costing up to £500,000 – again, as long as a family member puts up 10 per cent as collateral.
The Post Office’s Family Link mortgage works in a similar way, requiring a family member who is mortgage free to stake 10 per cent of their property’s value against the mortgage.
Building societies including Bath, Loughborough, and Vernon also and more also offer varying 100 per cent mortgages.
Of course, be aware that with most of these mortgages, whoever is guaranteeing your loan will likely be liable for your repayments if you miss them.
You also may end up in negative equity – where your home is worth less than your mortgage – if prices fall.
Use a whole of market mortgage broker to find the best deal for you.