First-time buyer deposits in London: lockdown mortgage restrictions mean you may need to save even more for a first home
Higher loan-to-value mortgages are back on offer as the coronavirus-induced property market hiatus lifts, with Virgin Money among lenders offering 90 per cent deals now that their valuers are again able to assess in person.
With high deposits one of the biggest barriers to home ownership in London, on the surface this is good news for first-time buyers who don’t have the equity from a sold property to help them raise the hefty 15 per cent-plus deposit they would have needed in the past few months.
However, even assuming you can get a 90 per cent mortgage, finding a 10 per cent deposit is beyond the means of most young London buyers without either extremely well-paid jobs or a very generous Bank of Mum and Dad.
Buyers need to find £47,800 for a 10 per cent deposit for a typical home in the capital, according to property portal Rightmove.
However, the data also shows a huge variation in the lump sum needed depending on location, since average asking prices vary widely from borough to borough.
The biggest deposit is currently required in Westminster, where 10 per cent of the average price is an eye-watering £102,000. Meanwhile, the lowest deposits in London can be found in Barking, where 10 per cent of the average property is £27,000.
Buyers will need more than £50,000 for a 10 per cent deposit in almost a third of London boroughs, all within Zones 1 and 2 – that’s an awful lot of working-from-home Tube fares in the piggy bank.
How easy is it to find a 90 per cent mortgage deal?
Although the availability of higher-rate mortgages has increased slightly this week, many major lenders, including Barclays, Halifax and Santander are still only lending up to 85 per cent loan-to-value as there is still a backlog in processing physical valuations.
This is expected to increase somewhat over the next few weeks but buyers with larger deposits will still have access to a greater range of mortgage deals.
“It is important that these lenders return, particularly for the London market, as 90 per cent options above £500,000 are very scarce – so during June I’d expect this area to improve further, allowing first-time buyers some additional options,” says Colin Payne of Chapelgate Private Finance.
Can I get a higher loan-to-value mortgage if I’ve been furloughed?
Lenders’ credit criteria is generally tighter than before the lockdown, says Miles Robinson, head of mortgages at online mortgage broker Trussle. “Some lenders are now declining mortgage applications if there have been any missed payments in the last 24 months, where they previously only reviewed the last three months of credit history.
“While affordability criteria hasn’t changed, lenders are reviewing customers’ individual circumstances.
“Furlough and loss of income continues to require more in-depth underwriting, especially for the self-employed or those who rely on overtime or bonuses.”
If you’ve been furloughed, then your furlough income will be used to calculate the maximum mortgage you can borrow, although if your employer is topping up your furlough payments and you have evidence of this, then the mortgage you are offered will be based on the full amount.
Do freelance income and overtime payments still count towards a mortgage application?
“A further consequence of the lockdown is that many lenders are now very cautious with variable income – ie overtime, commission and bonus – as clearly this will have been impacted by lack of work which is also likely to continue for the foreseeable future. However, there are exceptions and lenders will still look at key workers favourably when looking at variable income,” says Chapelgate’s Colin Payne.
Self-employed workers applying for a mortgage are usually asked for evidence of the past two years’ taxable income. Given the challenges now facing most freelances, lenders are likely to ask additionally for the last three months’ business bank statements, to better understand the applicant’s present income level.
Payne says there may also be more caution about lending to self-employed workers in industries affected by social-distancing measures, including retail, restaurants and entertainment venues.