‘Mates mortgages’ explained
Using the traditional 5-10 per cent deposit, at 3.5 times salary over 25 years model, property prices remain firmly out of the grasp of young homebuyers. However, many mortgage lenders have come up with initiatives to try to overcome the difficulties that people face when trying to buy that very first home.
So far they have offered extended mortgage terms, increased borrowing multiples and interest-only loans without the need for a repayment vehicle. However, with the latest research revealing that the £1 million first-time buyer house is only a mere 17 years away, are any of these options actually making a difference.
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The recent trend amongst first-time buyers, when looking to get onto the property ladder, are ‘mates mortgages’. Simply put; a group of friends club together to increase the amount they can borrow and increase their chances of getting that first foot on the ladder.
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Carina Kemp, head of mortgages at HSBC, said: “The average house price in England and Wales now stands at almost £200,000, which is over six times the average salary, but home ownership is as popular as ever so first-time buyers are thinking more laterally about how to get on the ladder.”
Moneyfacts.co.uk research shows that up over 60 mortgage lenders will now accept an application from up to four individuals. Although, 70 per cent of these lenders still only take into consideration the two highest salaries, leaving first-timers able to afford the monthly repayments, but not the property!
Don’t be a stranger
Buying with your best friend, sibling or someone you have previously lived with is the perfect solution for anyone looking into ‘mates mortgages’, but failing that, the internet is on hand with other people in your ‘first-timer’ position.
Websites such as www.sharedspaces.co.uk are becoming increasingly vital in a first-time buyers search to get onto the property ladder, and with hosts of others looking for the perfect co-buyer this could make the process much easier.
However, there are dangers with whoever you buy with and it is essential that you are legally sensible.
Before committing to the purchase of that dream home with your perfect co-buyer, you should get a ‘deed of trust’, which is a legal document outlining things how the property’s ownership is to be divided, how the major costs are to be split and what will happen should one of you decide to sell.
But don’t worry, it only costs about £200 and will save you a lot of hassle further down the line.
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Beware the credit risk
As we all know, if it was as easy as teaming up to help take that first step into home ownership then every first-timer buyer would be doing it.
The ‘flaw’ in ‘mates mortgages’ is that an adverse credit history on one individual can damage the other applicant’s history too, as soon as you buy with someone else, credit files become linked to each other by financial association.
Experian, one of the UK’s two main credit reference agencies, says the increasing number of first-time buyers getting together to stretch their borrowing should make sure they check their and others’ credit reports first, or risk future problems.
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A spokesperson from Experian, explained: “We strongly encourage people about to make important applications to check their credit reports as it can get to be a bit of a panic if something goes wrong at the last minute.
“If you are applying for something with other people it makes sense to all get credit reports checked then you can sit down and iron out any problems.”
Date: 22nd, August, 2007
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