First-time buyers are facing difficulties in securing mortgages, with calls for Government assistance to ease lending rules.
Moneyfacts explored the latest options for buyers in its recent loan-to-income (LTI) debate.
The Chancellor asked the Financial Conduct Authority (FCA) to relax affordability rules to support these buyers.
Research from Barclays Bank found that the main obstacles to homeownership were high prices (40%), and deposit costs (37%).
More adults in their 20s and 30s were found to be living with their parents, with the Institute for Fiscal Studies (IFS) noting a rise of more than a third in two decades.
Moneyfactscompare.co.uk reported around 400 deals were available for borrowers with 95% to 100% loan-to-value (LTV).
Rachel Springall, finance expert at Moneyfactscompare.co.uk, said: “First-time buyers are the lifeblood of the mortgage market, but it is an excruciating situation for them to secure a mortgage amid a short supply of affordable housing.
“There will be many reliant on the ‘Bank of Mum and Dad’ to help them get their foot onto the property ladder, such as with a guarantor mortgage.
Springall added: “There are even options for borrowers to add their family or friends onto their mortgage to borrow more, but these pose a risk to anyone on the application should the homeowner default on their mortgage.
“While there are Government schemes available designed to help borrowers buy their first home, there is so much more room for improvement when it comes to product innovation from lenders.
“Any innovation in the market for first-time buyers should be celebrated, such as the Track Record Mortgage from Skipton Building Society whereby rent payments are used to work out how much someone can borrow.
She advised borrowers to seek independent advice when evaluating their mortgage options to understand the true costs, including rates, fees, and incentives.
For the last decade, regulations have limited LTI ratios of 4.5 or above to no more than 15% of a lender’s new lending.
Springall stated that this poses challenges for lenders wishing to maintain a buffer to comply with these thresholds.
An example is Nationwide Building Society, which increased its minimum income requirement for its Helping Hand mortgage to £40,000 to stay within the regulatory LTI limit.
She said: “Clearly there are desires for loosening LTI rules, but this must be executed carefully to ensure borrowers don’t set themselves up for a fall later down the line and lenders don’t have to suddenly change their rules overnight.
“House prices can rise in the years ahead, but they can also plummet.
“The latter could be a disaster for borrowers with little equity in their homes from borrowing at the highest ends of the loan-to-value spectrum.”
