Given the recent base rate rise, many first-time buyers will be worried that their dreams of homeownership have been made even harder. However, the opposite appears to be the case, as unlike in the rest of the mortgage market, fixed rates for borrowers with only a 5% deposit have reached a record low.
The latest Moneyfacts.co.uk figures show that both the average two-year fixed mortgage rate at 95% loan-to-value (LTV) and the average five-year rate have reached their lowest value since Moneyfacts began recording this data in 2007. "For first-time buyers who often feel they get the short end of the stick, this is fantastic news," said Moneyfacts.co.uk finance expert Charlotte Nelson.
"Many would have expected 95% LTV rates to rise, but instead, in just one month the average two-year fixed rate has actually fallen from 3.95% to stand at 3.73% today, a whopping 0.22% lower." This is illustrated in the table below; whether you're looking for a two-year fix or longer, now is a great time to take out a first-time buyer mortgage.
Charlotte went on to explain providers are so keen to keep first-time buyers interested because it provides them with fresh blood that they'll then hope to retain. "With 95% LTV borrowers often seen as the lifeblood of the market, providers are keen to be seen as the go-to lender for this vital group," she said.
It seems more providers are realising this, as well, with the number of lenders in this area up by 10 over the last two years to stand at 58. "Not only are first-time buyers experiencing the lowest fixed mortgage rates on record, but they're also benefitting from a boom in the number of mortgages available, with 345 95% LTV deals this month, 120 more than in September 2016," Charlotte added.
However, while there's much to cheer about for soon-to-be homeowners, it's worth remembering that 95% LTV mortgages are still some of the most expensive in the market. Charlotte explains that "if borrowers are at all able to save even an extra 5% to move them into the 90% LTV bracket, they will be financially better off.
"For example, the average two-year fixed rate at 90% LTV stands at 2.76% today, which would see buyers save £102.44 a month compared to the average two-year fixed at 95% LTV [based on a £200,000 mortgage over a 25-year term on a capital and interest repayment basis]."
Despite this, if 5% of a house price (plus fees and moving costs) is all you can manage, then it might be wise to take advantage of the record low rates while they're still around.
"With mortgage rates falling, borrowers looking for a 95% LTV mortgage have a great opportunity to get a lower cost deal than ever before," Charlotte concluded. "Moreover, they may need to shop around quickly, as with economic uncertainties ahead, only time will tell if these low rates are here to stay."
If you're happy to save up a bit more, you could try using a Help to Buy ISA or Lifetime ISA to get a welcome Government bonus, and then head to the top mortgage charts to find a competitive product at 90% LTV or lower. If you'd rather take advantage now, you can click straight through to the first-time buyer mortgage chart to see if you can find the right deal for you.
Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.