The nights are drawing in, the weather is foul, and the autumnal equinox has passed. But along with a chill, there’s hope in the air for London’s first-time buyers.
Despite the Bank of England’s decision to hold interest rates at five per cent, mortgage rates have been trending down with a race to offer sub-four per cent interest. Barclays upped the ante today with a 3.71 per cent five-year fixed mortgage — although only for those looking for a 60 per cent loan-to-value (LTV).
While most of the recent offers from lenders have tended to benefit those who already own — and have built up some equity to leverage — one contender is firmly aimed at homeowner newbies.
Nationwide raised the bar this week with an offer that will allow buyers to borrow six times their salaries on their first home at a sub-five-per-cent interest rate. Most major lenders have been offering loans of 4.5 times a salary.
“It is good news that Nationwide has acted to provide more generous mortgages.”
The extension to their Helping Hand offering, which comes into effect on 24th September, would allow two people with a joint income of £50,000 and a five per cent deposit to borrow up to £300,000 with a 95 per cent LTV mortgage.
“It is good news that Nationwide has acted to provide more generous mortgages because affordability issues have got even worse especially for first-time buyers trying to get on the property ladder in places like London,” Aaron Strutt, product and communication director for Trinity Financial told Homes & Property.
Some smaller lenders already offer a six times salary, he pointed out, but at much higher rates of interest. “Most of the big lenders are normally very cagey about offering six times salary and 5.5 times salary is only normally available to higher earners,” he added.
Halifax and Lloyds Bank, for example, announced the First Time Buyer Boost for buyers with a five times salary rate on a combined income of £50,000 or more three weeks ago. It will, however, require a minimum ten per cent deposit (90 per cent LTV).
“This package of measures is an encouraging development in the first-time buyer market.”
These kinds of “income stretch mortgages” are now the only option available to renters who don’t have family help to produce a large deposit, Strutt explained. “The price hikes brought on by the mini budget and high base rate have made life very difficult for many first-time buyers and they have not been able to borrow anywhere near enough money to get on the property ladder.”
Matt Smith, Rightmove’s mortgage expert, also welcomed Nationwide’s move to help first-time buyers boost their borrowing power.
“This package of measures is an encouraging development in the first-time buyer market, as it directly addresses a major barrier that many face in being able to borrow enough to take that important first step on the housing ladder,” Smith said.
“It is likely to be particularly beneficial in areas such as London and the South East where house prices are higher, and currently the average asking price of a home is more than five times the average salary of two people.”
The average London asking price is currently £682,375, according to Rightmove, with the Office for National Statistics putting average house prices at £521,000.
“A combination of soaring rents and high day-to-day living costs mean the goalposts to homeownership feel like they're constantly moving for first time buyers,” said Ben Thompson, deputy CEO of Mortgage Advice Bureau.
“Seeing more lenders launching new products and innovating the sector is therefore always welcome. Allowing select first time buyers to benefit from the ability to borrow more than the usual 4.5 times their salary will help them in their bid to get onto the property ladder.”
However, while Nationwide’s six times salary offering could be a way onto the ladder, there could be a sting in the tail.
“First-time buyers need to be aware that if they take a six times salary mortgage, they may struggle to remortgage to another provider in the future,” warned Strutt, “unless more of the banks and building societies start offering more generous income multiples — or they get a good pay rise.”
Borrowers would effectively be locked in with their lender and unable to potentially take advantage of another’s once their fixed term is up. “While this means they might be a very long term Nationwide customer, they will have got a property on the property ladder and won’t need to worry about renting anymore.”
