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First-time buyer deals begin to dwindle

First-time buyer deals begin to dwindle

Category: Mortgages

Updated: 23/08/2016
First Published: 23/08/2016

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 It is now over 6 months old so the content may be out of date.

Given that some have been predicting a fall in house prices following the EU referendum vote, many potential first-time buyers will be poised to take advantage and get on the first rung of the housing ladder. However, they may be disappointed, with our latest research showing that the number of first-time buyer deals available is beginning to fall.

As the table below shows, a worrying number of 95% loan-to-value (LTV) products are disappearing from the market, with the total having fallen notably from six months ago. The saving grace is that there are still more available than they were this time last year, but if the trend continues, it may not be that way for long.

A year ago
6 months ago Highest point Today
Feb-16 Mar-16 Aug-16
Number of 95% LTV mortgages 195 253 270 225
Source: Compiled 23/08/2016

Charlotte Nelson, finance expert at Moneyfacts, said that it was "disappointing news" for first-time buyers (FTBs), with the number of 95% LTV products having fallen by 16% in just five months.

"It is particularly bruising when many hope that the predictions of cheaper houses would help them realise their dream sooner than expected," she said, "but unfortunately, a downturn in property prices can have a significant impact on the higher LTV mortgage sector."

This is because a negative turn in prices effectively depreciates the provider's resale value of the bricks and mortar, resulting in them reeling in their criteria and paring back their offerings to this sector of the market. In essence, they don't want to lend at such levels when the risk is that prices could fall, and "with many uncertainties in the market, providers may be treading carefully and will be more cautious about what they choose to offer the higher risk borrower," continued Charlotte.

Then there's the fact that the Help to Buy Mortgage Guarantee scheme is due to come to an end later this year. The scheme served to boost lending at high LTVs, so there's a very real possibility that its withdrawal could see the number of products at 95% LTV dwindle yet again, providing a further blow to borrowers with small deposits who were getting accustomed to the plethora of choice they had.

However, it isn't all bad for FTBs: mortgage rates at 95% LTV have fallen to all-time lows, with the average two-year fixed rate at this level having fallen from 4.44% last year to 4.04% today. This represents a £44.76 a month saving (based on a typical mortgage) if borrowers took out a mortgage today compared with a year ago.

"While it may feel that the odds are stacked against the first-time buyer, the 95% LTV market has seen a marked improvement from even a few years ago," concluded Charlotte. "Borrowers should therefore take advantage of the deals available now, to avoid the possibility of being disappointed in the future."

What next?

Compare the top first-time buyer mortgages

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.