Higher LTVs may let parents off the hook but are they a good idea?

Has buying a property for the first time ever been more difficult? There have been suggestions that those who would normally be buying their first home get used to the idea of being a generation of renters instead, simply because of the sizeable downpayment now required. According to Halifax, first-time buyers need an average deposit of £27,719, or 21 per cent of the property price.

Unless buyers have help from their parents, saving up this sum could take many years. Subsequently, parents are now central to helping first-time buyers onto the ladder, which hasn’t always been the case. Data from the Survey of English Housing shows that only four per cent of first-time buyers used a gift or loan from family or friends for a deposit pre-1980. In 2009, the Council of Mortgage Lenders (CML) said 80 per cent of first-time buyers under the age of 30 required parental help.

So with the number of first-time buyers at its highest level in ten months, according to figures out this week from the CML, does that mean more parents than ever are getting involved with their offspring’s property purchase? Perhaps. But also crucial to this increase is the rise in number of higher LTV mortgages now available. In the past few months, we’ve seen plenty more options at 90 per cent LTV and increasingly, more at 95 per cent, with Cambridge Building Society launching a five-year fix this week.

It doesn’t stop there. According to www.ftadviser.com, Northern Bank, based in Northern Ireland, has started offering 100 per cent LTV mortgages to new borrowers. This would mean those without any parental assistance and no savings could buy their first home but it is an interesting time to be offering mortgage with such high LTVs. Property prices in Northern Ireland have fallen more significantly than across most of the UK, and with prices more than likely to fall further still, borrowing 100 per cent of the purchase price could be seen as foolhardy. Before long, the borrower could find themselves in negative equity, making it practically impossible to move or remortgage when the deal comes to an end.

While 100 per cent LTV deals and beyond were commonplace at the height of the housing boom, it is one thing when property prices are rising and showing no signs of falling. But as we have since seen, prices can fall as well as rise, and people can find themselves in negative equity.

Although the housing market will benefit from a resurgence in first-time buyers, what we don’t need is another boom and bust scenario. Responsible lending is required, at higher LTVs admittedly but more of the 90 per cent level than 100 per cent and beyond.

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