Owning a home has long been a goal for young people looking to build a life, create a secure investment for the future or have somewhere to settle down. But for a first time buyer today the housing market is not an easy place to be. Buying a house for the first time today requires not just a strong credit history and a robust income but also a significant up front cash deposit. Compared to buying a first house 20 years ago, everything has changed – and guarantor mortgages for first time buyers are becoming increasingly key to enabling people to take that first crucial step.
First time buyers – today vs. 20 years ago
In the 1980s the average home cost £39,500. A first time buyer could buy a new build home but the most popular options at the time were often redevelopments, such as those taking place at docks around the UK. It was during the 1980s that Margaret Thatcher gave people the right to buy their council houses and this triggered the beginning of steep house prices rises – for example, in 1988 house prices rose by 25%. At the time this was the largest rise ever recorded. Since then the housing market has continued in the same way – by 1990 the average home cost £60,000 and as of September 2019 the average home in the UK cost £234,370. Some other key differences for first time buyers over the past couple of decades include:
- In the 1980s buying a house for the first time required an average deposit of £10,000. Today this is £50,000-60,000.
- Buying a first house is less affordable today. In the 1980s house prices were around three times average earnings. Today they are more like five times average earnings, 10 if you are buying in London.
- Mortgage rates are at a historic low so, in theory, it should be easier to obtain a mortgage for buyers today. However, issues such as a lack of deposit and poor credit history remain problematic.
Help for first time buyers
Acknowledging the issues that exist when it comes to trying to get a foot onto the housing ladder the government and the financial sector have tried to create help for first time buyers to make it easier.
- Help to Buy. This first time buyer scheme has taken several different forms but is now available as an equity loan. A first time buyer with just a 5% deposit can receive a 20% equity loan (40% in London) from the government and so will only require a 75% mortgage from a lender. The scheme extends beyond just first time buyers but is limited to new build properties worth £600,000 or less.
- First time buyer mortgage. Recognising that being a first time buyer these days presents a unique set of challenges lenders have begun to develop specific options when it comes to the first time buyer mortgage. These products are designed to take into account the issues that first time buyers have today, including a lack of deposit, poor credit history or problems meeting mortgage income thresholds. Guarantor mortgages for first time buyers represent a particularly popular mortgage option that can help to overcome these challenges.
Getting a mortgage with a guarantor
Guarantor mortgages for first time buyers provide options for anyone who is looking to get onto the housing ladder but may not meet the criteria for a regular mortgage. Some of the most frequently asked questions about guarantor mortgages for first time buyers include:
Who are these mortgages for? Guarantor mortgages are ideal for anyone who has either a small deposit or a low income.
Do you need a guarantor for a loan? Yes this mortgage loan requires a guarantor, which means that you’ll need a family member, colleague or friend to back the application. The guarantor’s role is to step in and take over repayments on the mortgage loan if you’re not able to do this yourself.
What happens if you have a non-existent or bad credit score? You can still get a first time buyer mortgage if you have a guarantor even if your credit history is potentially problematic.
Who can be a guarantor? Lenders may have different conditions but will usually require a guarantor to be at least 18 years old, a homeowner and/or with sufficient income. It’s also essential that a guarantor has a good credit history.
Do guarantor mortgages for first time buyers require a deposit? Some lenders will provide a mortgage at 100% Loan to Value, which would mean no deposit is necessary. The deal may vary depending on the lender and the borrower but 100% LTV isn’t usually available unless you have a guarantor.
Although it’s tougher to get on the housing ladder today, help for first time buyers exists, whether in the form of a first time buyer scheme or guarantor mortgages for first time buyers. So, even if you don’t have a big deposit or you have credit history issues, your dream of owning your own home could still come true.
Sources for statistics: