This week&#39s problem case

Ian is a first-time buyer looking for good value on a mortgage product. Typically for the cash-strapped first-time buyer, money is tight and Ian has a deposit of just £4,000. He needs to arrange a £96,000 mortgage to secure the property he has found. Ian is keen to make the most of his deposit to secure some equity in his property but realises that choice may be limited. He is keen to get things moving as soon as possible.

Intermediary response

Mike Waite, director of Royston-based Mortgage Quest, says first-time buyers must not tie themselves into a mortgage for more than three years and should try to avoid MIG fees The never-ending good news for existing homeowners holds only one benefit to first-time buyers – good mortgage rates. Ian will have a good selection of rates to look at, even with a 4% deposit. The crunch, however, is whether to go for a product that is rate-led or fee-led. By this I mean taking into account the costs of the mortgage such as valuation and arrangement fees but, more importantly, mortgage indemnity fees. First-time buyers should be careful about tying themselves to a mortgage for more than three years as they are likely to move more quickly than established homeowners. Paying an indemnity fee will take away any savings and, with fees up to £2,500 it may be worth getting a mortgage with a higher pay rate but with lower or no indemnity charge.

I would try to avoid such lenders. Also remember that if the client is concerned with falling prices and negative equity and if a lender has a scheme with no MIG charge, the lender may pay for the MIG themselves which still leaves the borrower having to find the difference should a property be sold below the mortgage advance.

Mortgage products are constantly changing and in today&#39s market there are several lenders offering 96%+ mortgages. With a choice of over 60 rates, it makes sense to look at those that allow up to 100% borrowing or more – these can be as competitive as, say, the Halifax, which offers 97% borrowing. I would prefer Mortgage Express in this situation as it does not charge the borrower any MIG. Combined with a deal via Mortgage Intelligence you get a 4.99% three-year discount with an added arrangement fee and only £195 towards the valuation fee. But this is not the cheapest deal and Ian may need to compromise and pay an MIG fee as the Halifax offers a deal via Mortgage Next with a 4.4% base tracker until 30/11/05 that has a valuation refund (up to £435) and £250 cashback. With a sliding redemption penalty of 3%, 2%, 1% in years one, two and three respectively, this beats Mortgage Express with a six-month interest penalty in the first three years. This gives Ian a deal that is just under £30 a month cheaper over a 25-year term on a repayment basis which probably means more to Ian than saving a MIG fee.

Lender response

Phil Jenks, head of mortgages at Halifax, says the bank offers a choice of special deals for first-time buyers and allows them to tailor the mortgage to their needs This is a fairly standard first-time buyer scenario, money is often tight when someone embarks on buying their first home. This is where Halifax can help provide a little extra.

Halifax offers a wealth of mortgage products suited to the FTB. A range of FTB packages has been specifically developed to help those purchasing their first home. A choice of special deals means first-time buyers can tailor their mortgage to suit their needs, choosing from extras such as £250 cashback to help with the costs of moving or a refund of the cost of a Halifax valuation report. Rates start as low as 4.25% for a straightforward lower variable rate; a rate of 4.50% is available with one additional extra or a rate of 4.75%with two additional extras.

In this case the client needs to secure a higher than average loan to value. Although there are a handful of lenders who will lend up to and over 100%, most will only lend to a maximum of 95% of the property&#39s value. The client is right to try and secure at least some equity in his new property as this should help him to secure a better deal.

Halifax can lend up to a maximum of 97% of the value of the property to be purchased which, in this case, will help the client&#39s money to go a little further. If required, it also leaves open the option for the client to hold back up to £1,000 of the funds he has earmarked for his deposit which could come in useful for other expenses such as new furniture or redecorating his new home.

A popular option among FTBs is to go for a fixed rate mortgage. This enables them to fix their costs in the all-important first few years of being on the property ladder. With so many other potential drains on the finances for many first-time homeowners, in the shape of buying new furniture and redecorating, fixing costs for the set period is often an attractive option.

A range of fixed rate mortgages is available at up to 97% loan to value. For example, Halifax is currently offering 5.15% fixed until February 28 2005. There is a £199 arrangement fee for this product.

Borrowers with a Halifax mortgage can also take comfort from the annual mortgage review offered to all Halifax mortgage borrowers. Each year an experienced Halifax mortgage adviser will conduct a review of the borrower&#39s circumstances to ensure that the mortgage is still the most suitable for their needs.

A selection of special mortgage deals and helpful tools are also available. For first-time buyers looking for helpful hints, tips and advice, a range of free tools are available to help guide them through the home-buying process.

A step-by-step homebuyer&#39s guide, downloadable property viewing checklist and &#39jargon-buster&#39 can all be found at www.halifax.co.uk.