A mortgage expert has issued a warning to any first-time buyers who are hoping to get on the property ladder using an incentive. With house prices continuing to soar across the UK alongside rising interest rates, it is becoming even more difficult for people to afford to buy their first home.
Recently, Skipton Building Society launched an 100 percent mortgage, the first of its kind since before the 2008 financial crash, in a bid to help 'trapped' renters onto the property ladder with a no deposit and no guarantor scheme.
But a personal finance expert at NerdWallet has now warned first-time buyers to be 'cautious' and says it is imperative that people don’t get carried away with 'disastrous' schemes and incentives in the hopes of buying their first home.
READ MORE: Join the FREE Manchester Evening News WhatsApp community
“Housing affordability is a big barrier to homeownership for many prospective buyers. Inflated house prices have hit home ownership for younger buyers especially hard over the last 20 years," Brean Horne says.
“Instead, there has been an increase in those renting homes and a rising number are continuing to live with their parents. Across England and Wales, the number of 25 to 29 year-olds living with their parents rose from 20.1 percent in 2011 to 26.7 percent in 2021.
"Similarly, the number of those aged 30 to 34 living with their parents was 11.6 percent compared to 8.6 percent a decade earlier."
The mortgage expert added: “The 100 percent mortgage product aimed at helping renters get onto the property ladder joins a handful of other providers in offering low-deposit mortgage products to help first-time buyers purchase their first home.
“But, while low-deposit mortgages reduce the challenge of saving up for a mortgage deposit, they come with long-term financial risks that could be disastrous for prospective buyers.
"Those with higher loan-to-value (LTV) mortgages are seen as more high risk by lenders, and as such often pay higher interest rates, which could further increase the financial burden on buyers should rates keep rising.
“It also increases the risk of negative equity which may limit buyers ability to sell in the future. Negative equity also makes it more difficult to remortgage and could leave buyers trapped on costly variable-rate deals."
Brean added: “The appeal of 100 percent a mortgage is understandable. Today’s prospective buyers face the monumental task of juggling the rising cost of living with saving up enough for a mortgage deposit. Saving a 15 percent deposit could take 5 years for a couple and around 10 for single buyers.
“However, mortgage deposits are only part of the house-buying story. And prospective buyers must also contend with overall mortgage affordability. Under current rules, the average applicant can borrow around 4.5 times their annual income, depending on a range of factors.
“Although homeownership remains a top financial aspiration for many, there isn’t a magic bullet solution available. So buyers need to weigh up the long-term financial risks and rewards of any mortgage product and it’s always worth considering alternative routes to homeownership.
“In some cases, it may be worth taking a little more time to save up a larger deposit and build up your credit score to help unlock more competitive deals and interest rates.”
Sign up to our free weekly property newsletter by clicking here
READ NEXT:
What £1,280 a month can get you in Manchester city centre as rents soar
Greater Manchester's cheapest house is on the market for just £20,000
'We transformed a house on a hill into our dream family home'
Inside the £1.8m mansion in Greater Manchester which boasts its own incredible spa
'I built my kids a glamping pod in our garden - now it's a celebrity site worth millions'
