Assessing graduate mortgage prospects
The introduction of home information packs has "undoubtedly" made the process of purchasing a home a whole lot simpler for naïve graduates and first-time buyers, according to AA legal services.
But coupled with reports of falling house prices and panic selling among borrowers unable to meet loan repayments, graduates will no doubt be keen to find out what their mortgage options and buying power actually is.
The situation as it stands
Unfortunately, despite the latest figures from the Land Registry indicating that the average UK house price has dropped by 0.4 per cent to £184,469, graduates find themselves in a rut.
According to Mform's calculations, the average student clocks up an estimated £20,000 or more worth of debt by the time they pick up their diploma.
In addition to an average starting salary of £16,000 for graduates, business development director for Mform Francis Ghiloni expects the situation to worsen when debt history information is made available to lenders in the future.
He said: "Many students miss one or more of their student loan repayments and this information will soon be made available to credit references agencies."
Media hype
But there are many instances where this is not the case. For example, graduates moving into professional training roles are likely to be a little more positive about their earning prospects providing some financial reassurance of their borrowing capabilities.
Many corporate law firms and investment banks offer training contracts to graduates in investment-bankers and solicitors roles with a starting salary upwards of £30,000.
Even for those professionals that are not so assured of their financial standing, prospects for graduates may have been subject to media hype.
Paul Holmes, chief executive of Firstrung, notes that for many students loan repayments are rarely given much thought because the repayments tend to be so low.
"I would still say that, in the majority of cases, as far as the evidence I've seen, student debt – despite the figures that the media often likes to paint and shock and bore us with – is still relatively low for a student when they come out of university."
He continued: "I don't know of any mortgage underwriters that pay triple attention to student debt when they can make an underwriting decision as to whether they're going to led or not. It's a very low amount."
Nothing but the facts
The main difficulty is that many lenders are withdrawing mortgage products offering the maximum 100 per cent loan-to-value (LTV) amount.
According to Moneyfacts, 11 lenders have reduced their LTV to 95 per cent or less in light of the credit crunch.
Melenie Bien of Savills Private Finance told the Guardian that those lenders still offering a LTV are charging a higher premium than previously.
"There has always been a premium, but now it is more exaggerated," she said.
In addition to this, some lenders are upping the deposit amount to ten per cent for new mortgage borrowers.
Hitting home
But this may not be such as bad thing.
The negative side of the 100 per cent - or in some cases 130 per cent - LTV mortgages offered before the onset of the credit crunch last year is that graduates immediately start at zero-equity.
And with reports suggesting house prices are at worst predicted to fall and at best hanging in the balance, graduates taking out these deals could end up with negative equity before the know it.
Coupled with higher lending charges on high LTV loans, it is surely a good thing that graduates are being encouraged to save a larger deposit.
According to research by Abbey, 42 per cent of students are already saving for deposits, in contrast to just 19 per cent choosing to save for a gap year.
With Mintel Gap Year Reports valuing the UK gap year market alone at £2.2 billion, reassessing priorities may well be the determining factor for prospective graduate homebuyers getting onto the property ladder.
Mortgages for Professionals is a specialist mortgage broker offering a whole-of-market choice of all UK lenders. We provide a service dedicated to individuals with professional qualifications and high projected earnings – from doctors and dentists, to accountants and engineers
But coupled with reports of falling house prices and panic selling among borrowers unable to meet loan repayments, graduates will no doubt be keen to find out what their mortgage options and buying power actually is.
The situation as it stands
Unfortunately, despite the latest figures from the Land Registry indicating that the average UK house price has dropped by 0.4 per cent to £184,469, graduates find themselves in a rut.
According to Mform's calculations, the average student clocks up an estimated £20,000 or more worth of debt by the time they pick up their diploma.
In addition to an average starting salary of £16,000 for graduates, business development director for Mform Francis Ghiloni expects the situation to worsen when debt history information is made available to lenders in the future.
He said: "Many students miss one or more of their student loan repayments and this information will soon be made available to credit references agencies."
Media hype
But there are many instances where this is not the case. For example, graduates moving into professional training roles are likely to be a little more positive about their earning prospects providing some financial reassurance of their borrowing capabilities.
Many corporate law firms and investment banks offer training contracts to graduates in investment-bankers and solicitors roles with a starting salary upwards of £30,000.
Even for those professionals that are not so assured of their financial standing, prospects for graduates may have been subject to media hype.
Paul Holmes, chief executive of Firstrung, notes that for many students loan repayments are rarely given much thought because the repayments tend to be so low.
"I would still say that, in the majority of cases, as far as the evidence I've seen, student debt – despite the figures that the media often likes to paint and shock and bore us with – is still relatively low for a student when they come out of university."
He continued: "I don't know of any mortgage underwriters that pay triple attention to student debt when they can make an underwriting decision as to whether they're going to led or not. It's a very low amount."
Nothing but the facts
The main difficulty is that many lenders are withdrawing mortgage products offering the maximum 100 per cent loan-to-value (LTV) amount.
According to Moneyfacts, 11 lenders have reduced their LTV to 95 per cent or less in light of the credit crunch.
Melenie Bien of Savills Private Finance told the Guardian that those lenders still offering a LTV are charging a higher premium than previously.
"There has always been a premium, but now it is more exaggerated," she said.
In addition to this, some lenders are upping the deposit amount to ten per cent for new mortgage borrowers.
Hitting home
But this may not be such as bad thing.
The negative side of the 100 per cent - or in some cases 130 per cent - LTV mortgages offered before the onset of the credit crunch last year is that graduates immediately start at zero-equity.
And with reports suggesting house prices are at worst predicted to fall and at best hanging in the balance, graduates taking out these deals could end up with negative equity before the know it.
Coupled with higher lending charges on high LTV loans, it is surely a good thing that graduates are being encouraged to save a larger deposit.
According to research by Abbey, 42 per cent of students are already saving for deposits, in contrast to just 19 per cent choosing to save for a gap year.
With Mintel Gap Year Reports valuing the UK gap year market alone at £2.2 billion, reassessing priorities may well be the determining factor for prospective graduate homebuyers getting onto the property ladder.
Mortgages for Professionals is a specialist mortgage broker offering a whole-of-market choice of all UK lenders. We provide a service dedicated to individuals with professional qualifications and high projected earnings – from doctors and dentists, to accountants and engineers
