First-timers hold the homebuying advantage: Neasa MacErlean finds newcomers displaying caution

DESPITE the incentives on offer, potential first-time homebuyers are taking a cautious view of the market.

'The level of caution is the highest it has ever been,' says Ian Darby, of the mortgage broker John Charcol. 'People are taking their debts seriously. People's level of knowledge is higher.'

Estate agents and mortgage advisers have seen their business rise in March but decline since then. However, in the past couple of weeks there have been signs that more new buyers are looking seriously at the property market.

There are plenty of deals to help first-time buyers. These range from six-month 4 per cent fixed rate deals to 100 and 95 per cent advances where other borrowers are restricted to 90 per cent loans.

Although they may be disappointed by the lack of business, the lenders are commending prospective housebuyers for their prudence. Abbey National is trying to attract first-time buyers by offering them a three-year fix at 7.55 per cent, 0.35 per cent less than other borrowers will be charged.

But the bank has just published a survey showing that more than 50 per cent of first-timers expect to save for a year before buying. 'It is good to see that first-time buyers are considering the long-term implications and preparing for expenses they may incur in years to come,' says a spokesman.

The average first-time buyer at the start of the year put down an 18 per cent deposit on a pounds 46,000 property, according to the Council of Mortgage Lenders.

But, although new buyers are generally better placed financially to buy a property now than they have been at any stage in the past 10 years, many first-time buyers are still having considerable difficulty in putting down a deposit. Very few lenders will make 100 per cent loans. Those that do, however, are busy.

The Royal Bank of Scotland does not require a deposit from first-time buyers. It estimates that it is doing 20 per cent more business in this sector than its rivals.

Its fees to cover the risk of taking on large loans are also lower than most of its rivals. On a 90 per cent advance of pounds 36,000 the RBS calculates that it will charge a fee of pounds 240, compared with pounds 285 at the Nationwide, pounds 300 at Abbey National and pounds 360 at the Halifax.

Whereas most lenders charge a fee for mortgage indemnity insurance if the borrower wants more than a 75 per cent advance, the RBS only levies an extra charge on advances greater than 80 per cent.

National Westminster and the Midland have both just launched 10- year mortgages fixed at 8.99 per cent. Although other borrowers are restricted to 90 per cent advances on these loans, first-time buyers can borrow up to 95 per cent.

The more usual form of incentive is in lower mortgage rates. Cheltenham & Gloucester has a 4 per cent first-time buyer deal fixed until February next year. Britannia is offering a six-month 3.99 per cent fix and the Alliance & Leicester has a one-year fix of 4.99 per cent. Although the rates are good, they do not last long enough to provide homebuyers with any significant protection against unexpected interest rate rises.

Longer first-time buyer deals include Lloyds Bank's 5.99 per cent mortgage fixed until March 1995 on 95 per cent advances. The Halifax is offering a two-year fix of 6.95 per cent, also for 95 per cent advances. National & Provincial provides a three-year 7.49 per cent fix on 90 per cent advances.

Lenders do not expect a substantial increase in housebuying activity now that the holiday season is in full swing. But if the economic indicators continue to improve they expect a more sustained upturn by the end of the year.

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