FTBs need strategy to reduce debt from the outset
Lenders have expanded their range of high loan-to-value (LTV) mortgages for first-time buyers – though this comes with an increased risk of debt for those taking them on.
Leeds Building Society, Metro and Lloyds are among the lenders offering low-to-no-deposit options for first-time buyers.
Leeds Building Society’s Start Mortgage is available to first-time buyers on a five-year fixed rate of 5.65%. Metro Bank launched a joint borrower sole proprietor (JBSP) mortgage that allows first-time buyers to borrow up to 100% LTV with the support of an immediate family member. In May, Lloyds launched a minimum £5,000 deposit option, equivalent to just over 98% LTV.
Sprive, an app that helps borrowers with overpayments, said first-time buyers need to think beyond just securing their mortgage – and have a strategy in place to reduce their debt from the outset.
Jinesh Vohra, CEO of Sprive, said: “While a smaller deposit helps people get on the ladder sooner, it also means borrowing more and starting out with very little equity.
“With many first-time buyers already taking out longer mortgage terms to keep monthly repayments affordable, it’s more important than ever to think beyond simply getting approved for a mortgage. Even small overpayments made from day one can knock years off the mortgage term and save tens of thousands of pounds in interest over the life of the loan.”
Are your clients ready for the first Making Tax Digital reporting deadline?
Sponsored by BM Solutions
FTBs need to boost savings
While creativity of products from lenders has improved, house prices were on the rise.
House prices rose by 0.2% in June, with the average property value at £299,330.
According to MoneyBox, house price inflation left the average first-time buyer saving for an additional nine months just to get onto the ladder with the averagely priced UK home.
Furthermore, Moneybox’s first-time buyer consumer research showed average monthly contributions have jumped from £344 in 2023 to £475 today, yet many buyers still feel they are falling behind.
From its survey of 2,000 aspiring first-time buyers, 71% said their savings journey will now take longer than originally planned, as buyers now expect an average wait of four-and-a-half years to achieve homeownership, up from 4.2 years in 2023.
Brian Byrnes, director of personal finance, said: “We speak to first-time buyers every day. Most are dedicated to their ambitions and saving habitually, but the frustration is obvious when it feels like the goalposts are constantly shifting. Even with interest rates working in their favour, house price growth is still edging ahead of the average saver.
“The most effective way to outpace the market is to ensure every single pound is working as hard as humanly possible from day one. Utilising a Lifetime ISA is a fantastic way to do this, giving you a 25% boost on your savings paid monthly, which means up to £1,000 of free money from the government every year to help shrink that deposit gap.
“In particular, ideas like paying the government bonus only at the point of purchase would mean savers miss out on years of compounding growth and visible progress. Without that monthly compounding boost actively working for them in the background, buyers will find it even harder to close the gap on a moving finish line, leaving some needing to save for longer just to reach the same goal.
“Revisit your savings goals regularly to make sure house price growth isn’t leaving you behind, but most importantly – don’t be disheartened. The gap is real, but it becomes more manageable once your savings are working effectively for you.”
