First-time buyer mortgage options in London

In short Your deposit is not the only thing that decides what you can buy. Richard Merrett, Managing Director of Alexander Hall, explains how a parent can help without simply gifting the money, what an interest-only mortgage changes and how the market has shifted in London.

In this video Richard Merrett, Managing Director of Alexander Hall, with James Stevenson, Managing Director of Sales at Foxtons. Filmed at The Brentford Project by Ballymore.

How can family help you buy your first home?

James Stevenson: What help is there for first-time buyers who haven't been able to save and are short on a deposit?

Richard Merrett: Lots of options. We've touched on the fact that there are more low-deposit products, but that's only part of the story. There are also lots and lots of options for family help, and we see bank of mum and dad being very, very common in lots of first-time buyer scenarios. That could be that they've been given more deposit, but there are actually lots of options with lenders where the parent can assist in other ways. That might be not having to actually gift the deposit funds, putting it on account and still being able to access it in the future. Or that could be using the parent's income, almost like an income boost. These are typically known as joint borrower, sole proprietor mortgages. You can still have the benefit of being a first-time buyer, so you save on stamp duty and the property is in your name, but your parent can assist by using their income to increase the borrowing capacity.

Does an interest-only mortgage change your rate?

James Stevenson: How would an interest-only mortgage impact a buyer's mortgage rate?

Richard Merrett: More often than not, it won't actually change the rates. The rate will be the same whether the customer does repayment or interest-only. What it does do is affect the monthly payment. Interest-only hasn't been as accessible over the last period of time, and probably for the right reasons, but given the very, very low number of defaults and repossessions, again driven by regulation, we're seeing a lot more flexibility around this. What it can mean is that someone can structure their mortgage and have it on interest-only, which means the monthly payment is lower, which means higher borrowing capacity is more accessible through the monthly payment, and then they can make a change to that in the future. That might be by overpaying through a lump sum at the end of the year if they've received a bonus or some money from family, or making a change a few years down the line. When you buy your first home, that's the most expensive point. So keep the payments as low as possible to start off with, and then start to make inroads as your personal situation, your income and your affordability improve over time.

Is now a good time to buy in London?

Richard Merrett: There's more stock on the market than we've had for the last few years. Prices have definitely softened a little bit. There's a bit more of a feeling that it's a buyer's market, and it goes hand in hand with this heightened borrowing capacity and affordability. That means you've got more people who can potentially make an extra step, particularly for first-time buyers, in that first purchase. Yes, the rates may be a little bit higher than they have been in the past, but they're still very much in line with what we've seen over the longer periods of history. So it's probably a case of have a look at your options. Don't be deterred by the high rate headlines, and you might find that things are a lot more positive than you perceive.

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