Help at hand for buyers on bottom rung

Despite interest rate rises and recent predictions of a housing market crash, prices are still rocketing, making it more difficult than ever for first-time buyers to afford their own home.

Research by the Halifax in March indicated that property in 80 per cent of the 667 main UK postal towns was unaffordable for the majority of those buying their first home during the last year. Simon Tyler, managing director of Chase de Vere Mortgage Management, says: 'The percentage of sales to first-time buyers has dropped sharply [falling to 32 per cent last year compared to 2002] and the average age of people buying their first home is now about 34, which shows how long many people are taking to save up their deposits.'

First-time buyers underpin the whole housing market. Martin Ellis, chief economist at the Halifax, says: 'We need first-time buyers to establish housing chains, they're a vital part of the market.' Not surprising then that several banks and building societies have launched special mortgage packages designed to help potential buyers achieve their first purchase.

Many first-timers have problems borrowing sufficient money on normal income multiples (typically a maximum of 3.5 times one salary), and normal deposit requirements, usually at least 5 per cent and more often 10 per cent, of the property's price.

The Halifax aims to tackle this problem with its First Time Buyer range of mortgages, which lend up to 97 per cent of the property price. The base-rate tracker enables borrowers to select from a menu of rates and 'extras' - ?250 cashback, or a refund of the cost of the Halifax valuation report, or a refund of conveyancing fees. Someone who chooses one 'extra' will pay a rate of 0.64 per cent above base (producing a current rate of 4.64 per cent) for three years, two extras 4.74 per cent and three extras 4.84 per cent. Alternatively, a borrower who opts for the Halifax five-year 5.99 per cent fixed rate gets all three extras.

But there are more competitive fixed and discounted rates available, even for buyers needing to borrow the full amount (known as 100 per cent loans). NatWest is offering 100 per cent loans discounted by 1.1 per cent from its standard variable rate (producing a current charge of 4.94 per cent) until May 2006, with a free valuation and no penalties.

But David Hollingworth of independent mortgage brokers London & Country warns that buyers in this situation should beware the 'mortgage indemnity guarantee' (MIG), an expensive insurance policy that many borrowers with small or no deposits are required to buy to protect the lender if it is forced to repossess the property and sell it for a loss. He points out that someone buying a ?76,000 house with the NatWest mortgage would have to pay ?1,900 for the required MIG.

He suggests three MIGfree alternatives: a Northern Rock Together mortgage fixed at 5.89 per cent for two years, with a ?595 arrangement fee; the Scottish Widows Graduate Mortgage, which is fixed at 5.59 per cent for two years, with a booking fee of ?295, or a base-rate tracker set at 0.25 per cent below base for six months, then 1.25 per cent above base indefinitely (there is no application fee but borrowers must have graduated within the previous seven years); or Coventry Building Society mortgages fixed at 5.69 per cent for five years, with a ?199 application fee.

Simon Tyler of Chase de Vere says increasing numbers of first-timers are benefiting from deals that allow parents, friends and family to help. He suggests the Bank of Ireland 1stStart Scheme, which allows buyers to borrow four times their parents' income, once the parents' existing mortgage payments have been deducted. A borrower earning ?20,000 a year would qualify for an ?80,000 mortgage in his own right, but if the parents earned ?35,000 and paid ?3,750 in mortgage payments a year, Bank of Ireland would lend four times the remainder - ?125,000, plus the child's income, giving a total of ?145,000.

Newcastle Building Society Society allows a whole group of family members to pool savings, which are then offset against the buyer's mortgage to reduce monthly payments. Tyler says: 'Newcastle will only lend up to 85 per cent of the property price, but if the mortgage required was ?100,000 and the family pooled ?50,000, then the child would only pay interest on ?50,000.' The buyer must borrow at a five-year fixed rate which went on sale on 16 April at 5.4 per cent. Family members cannot access their money again until the five-year period has ended, when hopefully the buyer will be able to afford the repayments on 85 per cent of the property value on their own.

· For further information contact: London & Country 01225 408000; Chase de Vere Mortgages 020 7930 7242