More mortgage choice for new buyers

Just as a first time buyer in the current slowing housing market is in a good position to negotiate the price of a first home, so too do first time buyers have bargaining power when shopping around for a mortgage. With new first time buyers in short supply, lenders are eager to get their business and have developed more innovative and flexible mortgages.

Help is also at hand for those with a small deposit because many lenders, including Bradford & Bingley, Woolwich and Scottish Widows, have recently reduced the cost of borrowing by cutting the higher lending charge.

There is a wide choice of mortgages available to first time buyers. You can choose from 110% loans, higher income multiples of more than four times salary, flexible loans, longer term loans of up to 40 years, trackers, guarantor mortgages, interest only, cashbacks and fixed, variable or discount loans. The list is as confusing, as it is seemingly endless.

Halifax advises that if you cant afford a home of your own now, dont give up. Keep on saving and youll be surprised how quickly a deposit can mount up. After all, renting is just feathering someone elses nest. As well as looking at the affordability of the monthly mortgage repayment, you need to consider all the other bills, including property repairs and improvements, and you should also consider what your repayments could be if interest rates were to rise.

Getting by with a little help from your family...

If you arent quite earning enough at the moment, one option is a guarantor mortgage. This is where your parents or close family guarantee the loan for a certain period of time. But a word of warning; it is up to guarantors to notify lenders when the time limit is up otherwise they can find themselves liable for the repayments even though they might have thought they were off the hook.

Bank of Ireland subsidiary Bristol & West and Coventry Building Society have taken this a step further and will include some of the parents income in the income multiple calculation. However, they point out that this type of mortgage is for those on a defined career path, such as a doctor or lawyer, who know they will earn more in the future and will be able to take over the whole loan.

The Scottish Widows professional mortgage is also suitable for those who expect to earn a lot more in the future. You may borrow 100% of the valuation of the property plus another 10%, which can be used for any purpose.

To stretch your income to the maximum some lenders such as Bradford & Bingley will include potential rental income under the governments room to let scheme, which lets you rent out a spare room and earn £81 a week tax free. This enables you to add £4,250 into your income so you can increase the amount you can borrow.

To cut the cost of home ownership in the early years, when it matters most, HSBCs HomeStart mortgage allows you to pay interest only in the first three years and then switch to a capital repayment loan. The bank will also extend the term of the mortgage to 30 years, but surprisingly this option is not popular, because it increases the cost of the loan. On the whole, most people want to pay off their loan as quickly as possible.

18 May 2005 © Moneyextra.com

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