Despite some providers returning to the first-time buyer market, those looking to get onto the property ladder with a 5% deposit will still struggle to find deals and, as such, many prospective homeowners have been turning to family for additional help when purchasing a property.
Research carried out by Moneyfacts.co.uk has found that for those with a 5% deposit, there are currently just four deals fixed for two years available at a 95% loan-to-value (LTV) and only eight deals fixed for five years at 95% LTV. Meanwhile, for those with a 15% deposit, there are 131 two year fixed deals available at 85% LTV and 148 five year fixed deals available at 85% LTV. First-time buyers who are unable to save for a 15% deposit themselves but able to do so when combining savings with a family member, would find that their mortgage repayments may also drop substantially.
The average rate on a two year fixed deal at 95% LTV is 4.25%, while the average rate on a two year fixed deal at 85% LTV is 2.19%. Using our mortgage calculator, we found that this would mean a first-time buyer purchasing a property valued at £200,000 on two year fixed 95% deal over a 25 year term, using the average rate of 4.25%, would have monthly repayments of £1029.30. Those who are able to increase their deposit to 15% and, therefore, are able to get a deal at 85% LTV would, if mortgaging at the average 85% LTV two year rate of 2.19%, have monthly repayments of £736.38. This would result in those able to buy a property at 85% LTV reducing their monthly repayments by £292.92 per month and £3,515.04 per year.
Clearly, for first-time buyers in the fortunate position of having a family member able to top up their deposit savings, there is the benefit of not only more choice in deals available but also lower monthly repayments. As well as this, having lower monthly repayments will also make the mortgage more affordable and, as such, increases the chances of the first-time buyer being accepted for the mortgage.
Another option available to first-time buyers who have family members able to provide additional funds is a guarantor mortgage. A guarantor mortgage requires a third party, usually a close relative, who may become liable for making mortgage repayments if the borrower defaults. While guarantor mortgages can work in slightly different ways, some also provide a saving option for the third party, which means that although their money is held by the bank as a guarantee against the mortgage, the third party also benefits from interest being added to their savings.
Barclays Family Springboard offers this type of deal, as Eleanor Williams, finance expert at Moneyfacts.co.uk, explains: “The 95% Barclays Family Springboard mortgage priced at 2.85% for five years requires the borrower to put down 5% deposit, with their family member then putting a further 10% of the purchase price into a Helpful Start savings account, also for five years. If all mortgage repayments are met, the helpful family member will receive their money back, with interest at the end of the five years. While this is a variable rate account, and therefore this rate may vary, it tracks the Bank base rate at a margin of 1.50%. Currently paying 1.60%, this is 0.10% higher than the top five-year fixed rate bond available on the wider market of 1.50% as an expected profit rate from BLME.
“A first-time buyer that takes out the Barclays Family Springboard mortgage could see a monthly reduction in outgoings of £165.24*** less per month than they could face on the average rental payment, and over the five-year term lower outgoings to the tune of over £9,000.”
Alternatively, for first-time buyers who do not have family members able to provide additional financial help, there are other types of schemes available such as Help to Buy mortgages and shared ownership. For more information about the options available to first-time buyers, read our story Help available for first-time buyers looking to get onto the housing ladder.
Before considering any of these options, first-time buyers should first consider speaking to a mortgage broker, as Williams added: “Anyone who wishes to consider one of the specialist products available to take that first step onto the property ladder would be very wise to seek independent, qualified advice. Not only is the mortgage market a very changeable landscape at the moment with products updating constantly, but speaking with a broker may well be invaluable in navigating the various products and help to ensure that the best decisions for individual circumstances are taken into account.”
*** Calculations based on a purchase price of £200,000, borrowing £190,000 over a 30-year term, with 5% deposit from first-time buyer (£10,000) and £20,000 deposited in Helpful start savings account, at an initial rate of 2.85% fixed for five-years. The average UK rent for new tenancies according to HomeLet’s rental index (https://homelet.co.uk/homelet-rental-index) is currently £951 per calendar month.
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