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Lending for house buying at highest level in five years

Lending for Scottish house purchases is at its highest level for five years, helped by first-time buyers taking advantage of the increasing range of low-deposit mortgages on offer.

DREAM MOVE: Gary Mackie and Lisa Grant, with baby Logan, bought their dream three-bedroomed house with a 5% deposit. Picture: Stuart Nimmo
DREAM MOVE: Gary Mackie and Lisa Grant, with baby Logan, bought their dream three-bedroomed house with a 5% deposit. Picture: Stuart Nimmo

Figures from the Council of Mortgage Lenders show 23% more homes changed hands north of the Border between July and September this year than during the same period in 2012. Almost 45% of those ­transactions involved first- time buyers.

Gordon Fowlis, regional managing director of estate agency Your Move, said last week: "It's clear the Scottish housing market is being restored to health. Sales are substantially better and prices are entering a period of prosperity, fuelled by rising consumer confidence and demand."

One of the major reasons for this is the growing number of 90% and 95% loans available to first-timers, making home ownership increasingly accessible to those able to put down a deposit of just 5% to 10% of the purchase price.

Ian McGrail, managing ­director of independent broker First Mortgage, said: "The market is now a very much better place for first-time buyers - they currently make up over 75% of our customers."

But even with more access to higher loan-to-value mortgages, Clydesdale Bank says almost six out of ten new Scottish buyers are relying on loans and gifts from family and friends to augment their savings.

And, despite getting a financial leg up, it takes more than half of new purchasers over two years to assemble their deposit.

Andrew Pearce, Clydesdale's retail director, said: "This research underlines the ­challenges that first-time buyers can face when trying to take their first steps onto the property ladder."

The Help to Buy (Scotland) shared equity scheme, launched in September, is designed to ease their progress - and that of existing homeowners - by enabling them to purchase new-build homes from participating developers in partnership with the Scottish Government.

The government will pay up to 20% of the price in exchange for a share of the property. The buyer can acquire this later at the original cost, or remain part-owner until they sell, when they will share the proceeds.

Lenders offering mortgages for these purchases include Nationwide Building Society, Halifax and Barclays, with the first sale under the scheme completed last month.

Wendy Whyte, Head of First Mortgage Dundee, says: "Help to Buy has driven a record number of enquiries for new build property in the last few weeks. Thanks to our strong connections with small, local builders like Discovery Homes, we have been able to help many buyers into their first home in time for Christmas. We are receiving enquiries for Help to Buy mortgage finance on a daily basis."

Meanwhile, under the ­(confusingly-named) UK- wide Help to Buy mortgage ­guarantee scheme for loans up to 95%, lenders can use a government guarantee to cover 15% of the loan, reducing their potential loss if the buyer defaults on their repayments.

This scheme was extended to Scotland in October and so far Royal Bank, Bank of Scotland parent Lloyds Banking Group and HSBC have begun providing loans on this basis, with Santander and Barclays saying they will join in soon.

However, buyers should not confine themselves to considering Help to Buy loans, as better deals may be available from lenders outside the scheme.

Before committing to a deal, buyers should also think hard not just about what they can afford but also how soon they might want to move. Mr McGrail explained: "The majority of our customers are taking fixed rates, because we know rates will rise, we just don't know when.

"There are some great five-year fixes and some brilliant seven-year deals, but if you're only planning a two or three-year stay in the property, they might not be in your best interests, as you will pay a penalty to move early."

When comparing deals, as well as looking at the interest rates, it is essential to take all possible fees and charges into account.

Independent comparison site Moneyfacts.co.uk lists best buy mortgage deals for first-time buyers. Among the 95% loans it features are an HSBC fix to March 2016 at 4.79% and one at 4.99% to March 2019, which both have a set-up fee of just £99.

Meanwhile Clydesdale Bank last week launched two new first-time buyer mortgages, both fixed for three years, with a 3.99% rate for 90% loan to value, and 4.99% for 95%. They both come with no arrangement fee and £500 cashback. The bank's standard two-year 90% loan at 3.89% has a £999 fee, but it now has a free-free version at 4.29%.

Mr McGrail said: "With 6000 mortgages on the market, there's a huge range of fee options, and borrowers need to work out the real cost of different combinations. Set-up fees can be added to the loan or paid up front - if the money's readily available, pay up front to avoid being charged extra interest."

It is especially important to scrutinise the additional costs attached to smaller loans and shorter deals, as they can become significant.

Mr McGrail pointed out: "If you're taking a two-year fix, a £1000 fee adds a lot of money, especially if you take a new one every two years."

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