First-time buyers may be pushed into buying smaller, cheaper homes in less desirable areas if they pick the wrong mortgage lender, new analysis has revealed.
Mortgage broker Trinity Financial entered details of a fictional typical first-time-buyer couple into nine mortgage lenders’ online calculators to find out how much they could borrow.
It found that mortgage lenders offer different loan amounts to applications with identical circumstances due to their varying mortgage affordability assessments.
Based on a joint income of £80,000 and a 25 per cent deposit, the research uncovered a near £124,000 difference between the most and least generous maximum loan amounts.
It means those who don’t shop around for their first mortgage may end up compromising on the home they buy, not knowing they could potentially borrow more elsewhere.
The analysis found that Nationwide Building Society and Atom Bank are the most generous towards first-time buyers.
Nationwide offers to lend up to six times annual income, via its Helping Hand scheme, which is available to eligible first time buyers with its five and 10 year fixed rate mortgages.
Securing a Helping Hand mortgage with Nationwide on a five-year fix with a 25 per cent deposit could mean a couple earning £40,000 each (£80,000 combined) could borrow up to £480,000.
This means they would be able to buy a home worth £600,000, which is more than the average property price in London.
At the other end of the spectrum, the analysis found that the same first-time buyer could be limited to borrowing £356,000 if they chose Santander.
OUR FICTIONAL CASE STUDY…
Two first-time buyers buying together
Each earning £40,000 annual salary (£80,000 combined)
Employed full-time
Date of birth: 1 June 1990
25% deposit
£100+ council tax per month, £600 building insurance per year if asked
70 retirement age
Each with £100 credit card debt
Buying property with an EPC rating C
With a 25 per cent deposit in place, this would mean they might end up buying a property worth £445,000.
Aaron Strutt of Trinity Financial, said: ‘Many first-time buyers do not realise that the amount they can borrow ranges so significantly depending on the lender they apply to for a mortgage.
‘It does pay to shop around when it comes to mortgage affordability and borrowing the amount you need.
‘Most lenders use completely different calculations to determine how much their customers can borrow, and as a result, the maximum loan sizes can vary significantly.
‘Lenders can also offer surprisingly large loans to joint applicants with clean credit histories and strong incomes.’
A string of mortgage lenders have been relaxing their affordability rules and launching products that could benefit first-time buyers in recent months.
Yesterday, Nationwide announced it will be offering first-time buyers the chance to get a 5 per cent deposit mortgage when buying a new-build.
The day before it was announced that first-time buyers with at least a 20 per cent deposit can now buy with an interest-only mortgage via lender Gen H.
Since March, multiple high street lenders have loosened their mortgage rules, allowing people to borrow more when buying a home.
And only last month, two smaller lenders announced they are now offering people the chance to buy a home with a mortgage covering the entire purchase price.
April Mortgages and little-known lender Gable Mortgages are both providing the home loans which don’t require the borrower to put down any deposit.
‘The mortgage market is quite complex these days, and lenders are keen to attract first-time buyers, which is why there are numerous products designed to help them get on the property ladder,’ adds Strutt.
‘Generally speaking, the largest lenders offer the most competitive rates, while smaller lenders charge more, especially if they are offering a more bespoke product.
‘Just because a lender offers high income multiples, it doesn’t mean borrowers need to max out their borrowing – it’s simply good to know the options they have available to them.’
Contact one of our highly experienced mortgage advisors today on 0121 500 6316 to discuss your mortgage needs.
