Home loans for first-time buyers powered by nine

First-time buyers are being offered a toehold on the property market under a new scheme to loan nearly nine times their salary for a purchase on a first home.

The Bristol and West say the new product allows an aspiring house owner or a student to combine their salary with that of their parents, to give them the higher amount.

Current guidelines suggest a lending rate of about three times the declared buyer’s salary but those rules are wavered for the mortgage initiative, known as 'First Start.'

Under the deal, a typical sum of £40,000 is offered by the parents and is added to an average starting wage of £18,000.

Such a figure would be too much for a student or school leaver to pay earning an average yearly wage of £18,000 – a take home pay of only £1,165 each month.

Repayments on a £164,000 mortgage would be £1,153.24 a month, based on a 6.75 per cent variable rate, offered also by the Halifax.

In such a scenario, Bristol and West say payments can be jointly shared by the parents and their offspring, as part of an "innovative product", able to get young people onto the property ladder.

If the buyer, through circumstances, loses their job or income, it falls to the supporting parents to meet payments and to stand in some instances as guarantors of the property.

As a result, it is recommended both the buyer and the parents obtain independent financial advice as to minimize the element of potential risk.

David Williams, Head of Marketing for Bristol & West, warns that parents may give "dead money," and never see their £40,000 again.

"It's important children and parents understand their commitments and liability," he said.

"We don't think it's a risky product," he confirmed for the BBC.

"It will help solve the problem in the market at the moment, which is that young people with good salaries can't afford the houses they really want."

He added: "There are parents who may not want to release equity in their own house or indeed give up their savings... we think First Start helps parents get their children onto the property ladder."

Bristol and West have been accused of merely swapping the burden around for parents but insist their scheme will place people in the market, that are otherwise excluded.

 

21st October 2004

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