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First Time Buyer mortgages bucking trend with record low rates for low deposits

17th February 2019 Print

While interest rates are increasing overall, mortgages for first time buyers have just got cheaper, according to new research by Defaqto, the financial information business.

High Loan-to-Value (LTV) mortgages, where a borrower can buy a house with a small deposit such as 5% of the value and borrow the remaining 95%, are typically used by first time buyers to get on the housing ladder.

While mortgage interest rates have been increasing overall, making mortgages more expensive, Defaqto has found that interest rates have been falling for 95% LTV mortgages. A year ago, the average interest rate on a two year fixed rate mortgage was 3.98% and today it is 3.46%.

The chart below shows effective rates (i.e. cost of borrowing including any product fees) for First Time Buyers has been dropping, for 2, 3 and 5 year fixed rate mortgages.

The best buy 2 Year Fixed rate available today is 2.86% from Barclays. However, a year ago the equivalent best buy was 3.49% from Hanley Economic Building Society. This 0.63% difference means a potential saving of £68 per month (based on a £200,000 mortgage over 30 years), compared with a year ago.

Not only are mortgages getting cheaper but there is also more choice in this part of the market. There are now 290 95% Loan-to-value (LTV) fixed rate mortgages available now, which is almost a 50% increase on a year ago (199). More lenders are serving this market too with 58 providers today compared to just 52 a year ago, an increase of 10%.

Brian Brown, Head of Insight at Defaqto, comments: “Buying a home is a huge investment and high prices have kept it out of the reach of many for years. It looks like the cost of buying a home has just got a bit easier for first time buyers as prices have finally stopped rising and mortgages are cheap.

“For those looking to get a mortgage, it is important to do your sums and check exactly what you can afford to borrow. While interest rates are low, an increase of just 1% can add hundreds of pounds to a monthly repayment and thousands to the overall cost of a home. It’s important to factor in what an increase could mean for your mortgage and whether you can afford it. If you need advice, talk to a qualified mortgage adviser who can recommend the best product for your needs.”