Mortgage expert warns first-time homebuyers of ‘disastrous’ incentives

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TO mortgage expert has issued a warning to first-time buyers hoping to hop on the property ladder using an incentive. With house prices continues to fly across the UK along with the rise Interest ratesIt is becoming increasingly difficult for people to afford to buy their first home.

Skipton Building Society recently launched a 100 percent mortgage, the first of its kind since before the 2008 financial crisis, in a bid to help tenants ‘stuck’ on the property ladder with a no deposit, no guarantor scheme.

But a personal finance expert from NerdWallet has warned first-time buyers to be ‘cautious’ and says it is imperative that people do not fall for ‘disastrous’ schemes and incentives in the hope of buying their first home.

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“Housing affordability is a huge barrier to homeownership for many prospective buyers. Inflated house prices have hit homeownership especially hard for younger buyers in the last 20 years,” says Brean Horne.

“Instead, there has been an increase in house rents and a growing number continue to live with their parents. In England and Wales, the number of people aged 25-29 living with their parents increased from 20.1% in 2011 to 26.7% in 2021.

“Similarly, the number of people aged 30 to 34 living with their parents was 11.6 percent compared to 8.6 percent a decade earlier.”

The mortgage expert added: “The 100 percent mortgage product aimed at helping renters move up the property ladder joins a handful of other providers offering low-deposit mortgage products to help first-time homebuyers buy his first home.

“But while low-deposit mortgages reduce the challenge of saving for a mortgage deposit, they carry long-term financial risks that could be disastrous for prospective buyers.

“Those with higher loan-to-value (LTV) mortgages are viewed as riskier by lenders and, as such, often pay higher interest rates, which could further increase the financial burden on buyers if rates they keep increasing.

“It also increases the risk of negative actions that may limit the ability of buyers to sell in the future. Negative equity also makes it more difficult to re-mortgage and could lock buyers into expensive variable-rate deals.”

Brean added: “The appeal of a 100 per cent mortgage is understandable. Today’s prospective buyers are faced with the daunting task of juggling the rising cost of living and saving enough for a mortgage deposit. Saving a 15 percent deposit could take 5 years for a couple and about 10 for single buyers.

“However, mortgage deposits are only part of the home buying story. And prospective buyers must also grapple with the overall affordability of the mortgage. Under current rules, the average applicant can borrow about 4.5 times their annual income, depending on a variety of factors.

“While homeownership remains a top financial aspiration for many, there is no silver bullet available. Therefore, buyers must weigh the long-term financial risks against the rewards of any mortgage product and it is always worth considering alternative routes to homeownership.

“In some cases, it may be worth taking a little more time to save up a larger deposit and boost your credit score to help unlock more competitive offers and interest rates.”

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