UK Mortgage Innovations For First Time Buyers

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UK Mortgage Innovations For First Time Buyers

                With first time buyers finding it especially difficult to get on to the property ladder, UK mortgage
                lenders are designing original and creative mortgages to support them. What products do first time
                buyers respond to? What makes them successful? What are the products of the future? This brief
                provides the key answers to how UK mortgage lenders can perform better in the first time buyer

                Report Scope
                Provides analysis of the implications of the marginalisation of first time buyers for the housing
                market as a whole
                Explores the UK mortgage market to profile and critique its most innovative products for first time
                Gives insight into the future of this market and how mortgage lenders, government and property
                developers could respond
                Report Highlights
                Traditionally, first time buyers accounted for between 45 and 55 per cent of total UK mortgage
                advances. They now account for less than 30 per cent. The housing boom of the last few years
                combined with a surge in buy-to-let investment has made it increasingly difficult for first time
                buyers to be able to afford a property.

                Shared ownership is perceived as downmarket because of its connection with social housing.
                Nonetheless, the concept offers real potential as a product for the private sector. Shared equity
                loans do pose risks to lenders and borrowers, but if improved, they could be a profitable product
                that would cater to otherwise excluded first time buyers.

                With first time buyers having trouble funding a deposit, more are looking to purchase a home with
                friends and partners. Joint ownership is a way for home buyers to share the deposit, mortgage
                payments and bills of a new property. Nevertheless, the mortgage carries crucial disadvantages
                and complications could arise if a co-owner wants to leave.

                Reasons to Purchase
                Learn about the latest innovations in the UK mortgage market, their strong points, weaknesses and
                Understand the intricacies of the first time buyer problem and how mortgage lenders have adapted
                their offerings to deal with the issue.
                Discover what first time buyers look for in a mortgage product and what you can do to acquire their


                CHAPTER 1 INTRODUCTION 7
                What is this brief about? 7
                Who is the target reader? 7
                How to use this brief 8
                First time buyers: a dying breed in the UK mortgage market? 9
                First time buyers are victims of the housing boom 10
                Buy-to-let investors have compounded the problem 17
                Government initiatives are focused on key workers not FTBs 20
                What are the implications for the industry? 24
                A lack of FTBs entering the market causes disequilibrium 24
                Mortgage lenders have had to change their product offerings to attract FTBs 25
                Ultimately, lenders have had to chase other business 25
                Do those FTBs that have entered the market in recent years represent a greater risk to lenders? 27
Conclusions 30
Introduction 31
2004: a slow year for mortgage innovation 31
The mass market has addressed the FTB issue to some extent 31
…however, this is unlikely to go far enough 32
Shared ownership schemes have real potential in the FTB market 33
Shared ownership schemes are popular for key workers 33
What is the potential for the shared ownership scheme in the private sector? 33
But complications with shared ownership means that some lenders have adapted the concept 34
Shared equity products have also been targeted at retirees 36
There are lessons to be learnt for future products 37
Shared equity loans pose risks to lenders and borrowers 38
The Government could play a supporting role 38
Notwithstanding, shared equity schemes are an indication of the way forward 38
Guarantor mortgages allow family members to help 39
How they work 39
Newcastle Building Society Guarantor Mortgage 40
1st Start by Bank of Ireland/Bristol & West 41
Family offset mortgages offer relatives a safer way of giving a hand 43
Newcastle Building Society Family Offset Mortgage 43
100 per cent plus mortgages can be unsafe 45
Because they pose risks to the borrower, 100 per cent plus mortgages have received bad publicity
There are also risks to lenders 46
Northern Rock Together Mortgage 46
Mortgage Express Max 130 Mortgage 47
Although the Together and Max 130 mortgages do free up borrowers’ finances, they are still risky
investments 48
Graduate and professional mortgages take increased future earnings into account 48
Scottish Widows Graduate Mortgage 48
HSBC Graduate Mortgage 49
Scottish Widows Professional Mortgage 49
Joint-ownership schemes allow people to club together to share the costs of buying a home 50
Joint-ownership is a developing trend 50
Though there are still difficulties to be worked out 50
Britannia Building Society Share to Buy scheme 51
There are other innovations aimed at FTBs 52
Rent a Room could be a way for home buyers to borrow more 52
Buy-to-let do attract some FTBs 53
Interest only mortgages offer help in the short-term 53
Discounted products for FTBs can give good rates for a period of time 55
Self-certification mortgages give non-conventional FTBs a chance to get on the property ladder 56
The first time buyer issue is a long term matter 58
Prices will slow in the next few years 58
Housing will become slightly more affordable but it could be a while before FTBs re-enter the
market en masse 58
How to best deal with the first time buyer problem 59
The Government must play a more active role 59
Property developers need to innovate 60
Lenders are in a ‘catch 22’ situation 62
Is there a need for cultural change in our view of property ownership? 63
Supplementary data 64
Definitions 67
Relevant readings 69
Future readings 69
Relevant links 70

The retail banking team 72
How to contact experts in your industry 73
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