Want a mortgage? You'll have to pass this exam!

One charity has said it is too easy for first-time buyers to arrange a mortgage without understanding the potential debt they could fall into -- and reckons they should have to pass exams first!

Do you think that first-time buyers should have to sit an exam to be able to get a mortgage? One leading debt charity has presented the idea as a possible solution to stopping people becoming over-indebted.

Malcolm Hurlston, chairman of national debt charity, the Consumer Credit Counselling Service (CCCS) spoke out at a conference last week to call for supervision of all first-time buyer mortgages by the financial regulator. And he suggested the issuing of homeownership certificates for anybody buying their first home.

He also called on all political parties to introduce training and counselling for those looking to buy their own homes, citing a practice already adopted in some parts of the US. He insisted: “First-time mortgages should be sold not with pretty ribbons and tax breaks but with health warnings. They should be sold like driving licences, after study and an exam.”

Is this going too far?

Over-indebted

Hurlston argues that those most likely to have a debt problem in Britain are those on low incomes who embarked on homeownership too soon, or when they can’t really afford it. He reckons first-time buyers should be educated before being allowed to buy.

I think the CCCS chairman has lost the plot here. I mean, I’m all for financial education -- in fact I think it should be made compulsory in schools to give kids an overall grounding of the financial basics. But getting first-time buyers to be counselled before they can get onto the property ladder is ludicrous.

After all, where do you draw the line?

Is it only essential that those who need a mortgage pass the exam -- are multi-millionaire cash buyers exempt, or those with rich parents who could bail them out if things got hairy?

What about the fact that most borrowers who fall into arrears do so because of an unforeseen life-changing experience, such as death, divorce or unemployment? That’s something that no amount of financial theory can truly prepare you for.

But most importantly, first-time buyers have another option already available if they don’t know enough about mortgages to make an informed decision. They can go to an independent qualified mortgage broker who will advise them on the best course of action.

Why should they be forced to learn about mortgages if they don’t want to know? They can get onto the property ladder with the help of an authorised expert, who knows oodles about mortgages, in theory and in practice.

For example, lovemoney.com's mortgage service is completely free of charge and all our brokers have passed professional mortgage exams, plus they are fully regulated by the Financial Services Authority.

They also do the legwork for you -- a whole lot easier than trying to get your head around the mortgage market yourself if you don’t feel confident about your financial acumen.

But whether you are a first-time buyer who wants someone to hold your hand throughout the process, or a savvy financial whiz who doesn’t want advice, are there any decent first-time buyer deals out there?

Push into FTB market

There are certainly more and more lenders looking to enter the small deposit market (dominated by first-time buyers). This is because business has become too competitive at the lower risk, large deposit end of the lending spectrum and lenders are starting to look for profit in the 90% loan-to-value (LTV) arena. The good news is that the more lenders that come into this market, the more mortgage rates will be pushed down -- great for those who can only scrape together a small deposit.

Only last week sister lenders The Cooperative Bank and Britannia Building Society launched a new range of deals up to 90% LTV (their previous maximum was 85%), showing an increased appetite for higher risk lending.

The new range includes a two-year fixed rate at 5.49%, a five-year fix at 6.09% and a three-year tracker at 4.49%, all with a £999 fee, although some fee-free options are also available. The rates are keen and up there with the best buys at this level (see table below). The deals are only available to house purchase customers (not remortgagors), on a capital repayment basis only (not interest-only) and the maximum property value is £350k (min £75k).

But it isn’t the only lender to have decent deals aimed squarely at first-time buyers. Below are some of the best mortgages for those with a 10% or 15% deposit:

20 fabulous FTB deals

More: Get ready for Base Rate rises | Crisis hits rental market