Historically it has always been tough to buy your first property as an average first time buyer. Earning enough as a young professional to borrow a large enough mortgage, saving a large enough deposit whilst also paying rent every month, and generally getting your finances in order can be a struggle. Now more than ever. As mortgage lending has gotten more strict over the last few years and lenders are asking for more and more from new purchasers, getting mortgages for first time buyers often seems like an impossible task.
Mortgage Size and Deposit
Being Able To Get a Big Enough Mortgage
Ask any potential first time buyer and they will tell you that the biggest stumbling block when planning on purchasing a home is the ability to save a large enough deposit and also the ability to borrow a large enough mortgage. Generally a mortgage lender will be willing to lend you between 4.45 and 5.5X your annual income as a mortgage loan. How much you are lent depends on how much you earn, how you are paid (e.g. heavily bonused or commission based income is not treated the same as majority salaried income.), and how much debt you currently have outstanding all contribute to your maximum mortgage loan.
Generally first time buyers are only just starting off in their career journey, so often they earn a minimal base salary with career progression and income increases expected over the coming years. According to data collected by the office of national statistics, the average salary of someone between the ages of 22 and 29 in the UK is £25,000. This jumps to £30,865 between the ages of 30 and 39. The average age of a firs-time buyer outside of London is 33.4 years old. So an average first time buyer on an average salary could borrow around £140,000 to £170,000 depending on lender and circumstances. The average overall first time buyer house price in the UK is £245,522. Can you see why people struggle to get mortgages for first time buyers?
First Time Buyer Deposit
The other factor stopping a lot of borrowers is the deposit that lenders require them to put down as a contribution. No lender will offer a 100% mortgage in the UK, so that means that every borrower will need to contribute some money towards the purchase themselves. In recent years, lender confidence in borrowers has decreased due to many factors such as the COVID-19 pandemic threatening incomes and the current UK economic crisis eating away at people’s disposable incomes. As a response, mortgage lenders have tightened their purse strings and will now often ask borrowers to contribute a much larger deposit, to limit their risk of lending.
It is not uncommon for lenders to ask for 15%, 20%, and even 25% deposit minimum from a borrower before they are willing to lend to them. So, taking the figures above, a lender might ask for a minimum of £36,828 deposit (15%) before they even consider lending any money. For people who are being gifted a deposit by family members, this is not a huge issue. But for people who are attempting to save the entire deposit themselves, being able to squirrel money away every month after paying rent and bills is extremely difficult.
However, not all lenders are as harsh with their deposit requirements, and as the UK’s economy starts to recover, we will see and are already seeing lender offering lower deposit mortgage options to help out borrowers who would otherwise struggle to save enough.
90% and 95% Mortgage Products Released By Coventry Building Society
In a fantastic show of support for first time buyers struggling to save larger deposits, Coventry Building Society have announced that from Friday the 14th of April 2023, they will be launching some reduced 90% and 95% mortgage products or 10% and 5% deposit loans, as well as reducing existing borrower products and some buy-to-let products. This is the communication that the lender has released:
- Reducing all 2, 3 & 5 Year First Time Buyer only fixed rates across 90-95% LTV (10% and 5% deposit mortgages for first time buyers)
- Reducing all 3 Year £999 fee Existing Client only fixed rates across 85-95% LTV (excluding Offset and Interest-only)
- Reducing all 5 Year no fee Existing Client only fixed rates across 90-95% LTV (excluding Offset and Interest-only)
- No changes to Offset, Interest-only or Tracker rates
- Reducing all BTL & Portfolio Landlord BTL fixed rates across 50-65% LTV
- No changes to Tracker rates
Highlights include a first time buyer 95% LTV 2-year fixed rate at 5.61% and a buy to let 5-year fixed 65% LTV product at 4.40%.
Speak To a Mortgage Advisor
These new rate reduction on higher LTV mortgages is very good news for first time buyers, however the issue of mortgage lending affordability still remains. That is why, if you are thinking of getting a first time buyer mortgage, you should always discuss your situation and your affordability with a professional mortgage advisor before making any decisions. Read our First-Time Home Buyer Questions To Ask A Mortgage Broker or contact our Putney mortgage team today to see how we can help you make your dream of home ownership a reality.