MI New Home, backed by a Scottish Government guarantee against borrowers defaulting, is a lifeline for credit-worthy customers previously locked out of home ownership. Lanarkshire couple Lindsay Maxwell and Stephen Thomson were the first to take advantage of the scheme following its launch last autumn.
Previously living with their parents, they have just enjoyed their first Christmas in their new home. Ms Maxwell said: "Having Christmas in our own home and being able to invite our family and friends round during the holidays was a dream come true. We thought it would take at least another year of saving for a deposit before we could move, but the MI New Home scheme made a huge difference and just goes to prove that you shouldn't be put off – there are mortgage options out there."
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The scheme covers new-build only, where valuations can be harder to establish, so caution is needed.
A website with details on the qualification criteria, links to participating builders' websites and advice has been launched at www.minewhome.co.uk
First-time buyer activity in the UK housing market has reached its highest level since the end of 2009, according to new industry figures, while Scotland's MI New Home initiative is to be boosted by the addition of four new house-builders and a third bank.
But the financial regulator this week questioned whether banks are passing on the subsidy of the government's Funding for Lending Scheme to home-buyers.
Andrew Bailey, head of prudential regulation at the Financial Services Authority, told MPs interest rates for borrowers had not come down as sharply as rates paid on deposits, and "the jury is still out" on whether the FLS is working. First-time buyers have the most reason to be concerned.
The £2.7 billion value of loans advanced to first-time buyers in November was 8% higher than October and 24% higher than November 2011, according to the Council of Mortgage Lenders. It follows Bank of England evidence that lenders made significantly more capital available for mortgages in the fourth quarter of 2012, and expect a further marked increase in the first quarter of 2013. Meanwhile, a survey by the Royal Institution of Chartered Surveyors has found higher volumes of property transactions, healthier buyer interest – and wider availability of affordable mortgages.
But economist Howard Archer cautions: "While mortgage interest payments as a percentage of disposable income are currently very low, other affordability measures are not so favourable."
First-time buyer numbers last year were still little more than half of the 402,800 who bought their first home in 2006. The average age of a first-time buyer has risen to 30, from 29 a year ago, and the typical deposit required is 20%, compared with 10% in 2007.
The number of mortgage products on the market has increased by around one-fifth since the FLS was launched last May, but most of the market activity has been aimed at borrowers with larger deposits. For those with 10% to put down, there were 258 products last month, up by 16 since August but down by 16 since last May, according to Moneysupermarket.com. The average interest rate has come down slightly from 5.33% in May to 5.21%. There are only six more 95% loan products available than there were eight months ago, and the average cost has actually gone up marginally to 5.83%.
Clare Francis, at Moneysupermarket, said new 90% loans from Santander and the Cooperative were a good sign, but added: "Many lenders claim their doors are open for business but the perception has often been different, particularly for first-time buyers." She also warned fees have to be assessed as well as headline rates. "We may have seen more products launched and rates come down since the Funding for Lending Scheme was introduced, but because fees have gone up, in many cases it isn't necessarily resulting in cheaper mortgages."
Martin Ellis, housing economist at Halifax, warned conditions for new buyers remained very difficult, with concerns over the economic climate adding to problems raising the necessary deposit.
But Scotland is home to the top eight most affordable areas for first-time buyers, according to the Halifax. Stirling is the most affordable, with average house prices two-and-a-half times earnings, followed by Renfrewshire, South Ayrshire, East Ayrshire, South Lanarkshire, Falkirk, West Lothian and North Ayrshire.
Now the availability of 95% mortgages for Scottish buyers has been given a further boost as new lenders join the MI New Home initiative, which aims to help those with smaller deposits afford a new home up to £250,000. Mactaggart & Mickel, Scotia Homes, Kier Homes, Ogilvie Homes and Tulloch Homes have signed up, taking the total of housebuilders to 20, and others are in the pipeline. Among the banks, Lloyds Banking Group is expected to join RBS and Nationwide in the scheme in the near future.
A recent report by Lloyds TSB claimed almost half of first-time buyers are turning to affordable housing schemes, with one in four saying such schemes were their only option for getting onto the property ladder. The bank was highlighting its range of shared equity and shared ownership mortgages, at rates starting from 3.44%.
Among recent product launches, HSBC has a range of 90% loans which are fee-free to its own customers. Rachel Springall, finance expert at Moneyfacts.co.uk, said: "HSBC's new deals aimed at first-time buyers provide potential borrowers with competitive rates coupled with a reasonable fee at a high loan-to-value percentage."
First Direct, part of HSBC, also has a new range of low deposit fee-free Home-buyer mortgages, some aimed at new borrowers. Almost two-thirds of buyers now get help from the "bank of mum and dad", says the CML, compared with less than one-third in 2005. The average deposit needed across the UK is £27,984.
Banks are responding. Barclays this week launched a Family Springboard mortgage featuring a 95% loan fixed for three years at 4.69%. But the borrower's family must pay 10% of the house purchase price into a Helpful Start savings account with Barclays, which will pay 2% (base rate plus 1.5%). The bank says: "When the three-year fixed rate ends, the savings are returned to the family."
Nationwide launched its Save to Buy scheme for first-time buyers last May. Customers who save at least £50 a month in a special account for six months can get access to a Save to Buy mortgage with a 5% deposit and have the opportunity to earn up to £1000 cashback. Nationwide said the scheme was being extended.