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Difficult times ahead for first-time buyers

Difficult times ahead for first-time buyers

Category: Mortgages
Author: Leanne Macardle
Date: 12/09/2016

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Many first-time buyers would have hoped that the prediction of Brexit leading to house prices falling would come to fruition, giving them a better chance of getting a foothold on the housing ladder. Unfortunately, the opposite could actually be occurring, as not only are first-time buyer (FTB) house prices rising, but availability of suitable mortgages is beginning to dip.

That's according to the latest AmTrust Moneyfacts Mortgage Loan to Value (LTV) Tracker, which shows that the average price paid by FTBs hit £161,912 in June, the highest seen so far this year. This could make it harder for typical FTBs to stump up a suitable deposit, an issue that's compounded by the fact that it could now be harder to even find a suitable mortgage: the number of 95% LTV mortgages available (typical FTB products) has seen a definite slump, with availability having fallen in the two months since the referendum (down from 249 in June to 238 in August).

FTBs lose out

However, this isn't the case elsewhere in the market. In fact, it's quite the contrary; the 95% tier was the only LTV bracket to see a monthly drop in availability in August, while the number of available products for those with larger deposits has risen. This "suggests it is only those unable to save bigger sums of money that are feeling the effects of Brexit so far", the report states, with FTBs bearing the brunt of the uncertainty.

Indeed, high-LTV lending accounted for just 2.5% of all mortgage lending during the first three months of 2016, down from 3.0% the previous quarter and 3.5% a year ago. It's also well below the peak market share of 4.2% recorded when the Help to Buy Mortgage Guarantee scheme was first introduced: the scheme kick-started lending to this sector of the market, but doesn't appear to have maintained it at the same high level, with small deposit lending having declined notably since then.

Rate benefits

In slightly better news for first-timers, mortgage rates have fallen to fresh lows, with the average rate for a 95% LTV mortgage down by 0.46% year-on-year to stand at 3.86%. In comparison, the average rate at 75% LTV fell by a lesser 0.15% on an annual basis to 1.72%; this means that the rate difference between the two has fallen to a record low of 2.14%, so FTBs won't have to pay quite the premium that they once did.

Indeed, thanks to lower interest rates, calculations show that those with a 5% deposit can now save £40 a month compared to what they would have paid if they'd taken out an average FTB mortgage a year ago, which adds up to savings of more than £480 over the course of a year. Those with 10% deposits fare even better: the monthly payment on an average 90% LTV mortgage was £52 per month lower in July 2016 compared to 2015, equating to annual savings of £624.

However, this could come as little consolation to those hit with the double whammy of price rises and a product shortage, since if they're finding it harder to build a deposit and secure that vital mortgage, they simply won't be able to benefit from lower rates.

Concerns remain

"The early indications are that Brexit has not prevented the upward march of house prices for first-time buyers, making high-LTV deals critical to those hoping to take their first step onto the house ladder," said Simon Crone of AmTrust International.

He added that it was "concerning, but perhaps not surprising, to see the number of available products for those with small deposits going into decline", with uncertainty in the market leading to a decline in lenders' appetite for risk. Providers are becoming less willing to lend to borrowers at such high LTVs for the simple reason that these borrowers could be most impacted by any economic shocks, so they're focusing on lending to those with greater deposits instead.

"This suggests that Brexit may not be as good for first time buyers as initially thought," concluded Simon. "Despite the lower interest rates available, house prices continue to rise and a lack of appetite for high LTV lending will take its toll on FTBs. Saving a large deposit remains the biggest obstacle to homeownership, made harder for hopeful buyers by high rental costs and stagnant incomes; high LTV lending is therefore invaluable to many first-time buyers and their dreams of home-ownership."

Take action

It may be slightly harder to take that first step on the ladder, but that doesn't mean it's impossible – as long as you're prepared. The key is to start saving as much as you can into a dedicated savings account, perhaps an easy access version if you think you'll need to get at your cash, or a regular savings alternative to really get you into the savings habit.

Then it all comes down to finding the right mortgage to suit. Availability may be dipping, but there are still plenty of great deals out there, so check out the top first-time buyer mortgage deals to get started and see if you can make your dream of homeownership a reality.

Disclaimer: 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.