How first time buyers can still get a mortgage

First-time buyers have been stopped in their tracks, as most of the mortgage deals they have traditionally depended on to buy a home have been withdrawn as a result of the credit crunch. Last month saw the last hurrah for loans of 100% of the property's value. Many lenders have also withdrawn 95% deals - last week, for instance, Woolwich became the latest lender to withdraw its remaining 95% loans, so borrowers now need a deposit of at least 10%.

The only bit of good news has been that, in many cases, interest rates have been easing - but only for borrowers who can put down a big deposit. So that excludes most first-time buyers. Where, then, can a first-time buyer turn for help?

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Put down a bigger deposit

The obvious answer is to put down as big a deposit as you can, and to look for borrowing beyond your mortgage lender. Finding a deposit elsewhere than your own bank account may mean calling on family to help you find the cash. Otherwise you will just have to wait until you have saved up a bigger deposit yourself.

While it may be disappointing to be forced to wait in line, because house prices are now falling in many areas of the country, finding a deposit will probably take less time than you might have thought, as the purchase price of the property you choose may now be less than it would have been a few months ago!

Forget about the furnishings

It has been customary among several lenders over the past few years to grant a mortgage - or mortgage plus a separate loan - for a sum greater than the value of the property. The bank reckoned on the value of the property rising, and the likelihood of the borrower getting a series of pay rises, to cover its risk. The idea was to allow the borrower to have cash in hand for legal fees, furniture, decorations and alterations and all the other bits and pieces associated with a new home.

The credit crunch has put paid to loans like this. So, if you want to get your hands on your dream home, you are probably going to have to live with that nightmare of a kitchen, the old curtains that the previous owner abandoned and some sticks of furniture from a local house clearance for the time being. That's actually not a bad compromise if it means you can get your own home and do it up in your own time.

Getting your foot onto the first rung of the housing ladder? Moneyextra can help you compare all UK first time buyer mortgage deals to find you the best rate.

Guarantor mortgage

Guarantor loans that are truly useful to the first-time buyer are thin on the ground because the idea is that they stretch your borrowing ability to the limit. The lender is able to lend you that little bit more because the person who guarantees the mortgage - usually a parent - makes a legal agreement to meet the monthly payments if you fail to do so. This was a helpful strategy when you were bursting all your buttons with a 100% loan, but nowadays you will most likely be asked for a deposit of at least 10% anyway.

One of the rare 100% guarantor loans is Bank of Ireland's, at a very unappealing interest rate of 7.25%. If a guarantor mortgage doesn't work, you could consider some sort of shared ownership deal. Options include:

Joint mortgage

Here you share the mortgage with either a resident friend or partner, or with a non-resident parent who is helping you out. You should remember that there could be capital gains tax implications for the parent when you eventually come to sell, if the parent already has his or her own home.

You will also need to decide when you set up the legal ownership whether it is a joint tenancy, where you own the property together, or a tenancy in common, where each party owns a particular share of the property. The mortgage will probably be offered on the basis of "joint and several liability", which means that if one party stops paying the other party is liable for all the payments.

12 May 2008 © Moneyextra.com

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