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Here’s a way lenders could be innovative and help first-timers

Having recently attended Mortgage Strategy’s Mortgage Summit which I found most useful, I would implore lenders to be more innovative when it comes to first-time buyers.

Lenders complain that first-time buyer mortgages are a challenge and that the pricing of such deals is a reflection of market conditions.

They argue that Basel funding ratios, stepping into the unknown with a first-time buyer due to lack of credit history and a 10% deposit, all result in pricing at around 6%.

And of course, interest-only is a non-starter. Perhaps lenders might like to consider this as an idea. A first-time buyer could apply for a 90% LTV mortgage, with the lender assessing the debt at a realistic notional rate, say 5%, on a repayment basis to confirm affordability.

But the lender allows the borrower to be interest-only for say, three years. At the end of that period, depending on the age limit, the mortgage automatically flips to repayment for 25 years.

At that time the lender could do a soft credit search to confirm the client’s now improved credit score and give them a better rate, hopefully with a reduced LTV in a rising housing market. The outcome for the client would be a far more affordable mortgage scenario.

James Lindon-Travers
Lindon-Travers Associates

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