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First-time buyers are £2,000 better off

First-time buyers are £2,000 better off

Category: Mortgages

Updated: 11/08/2015
First Published: 11/08/2015

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 It is now over 6 months old so the content may be out of date.

Since the financial crisis, lending to first-time buyers almost became non-existent, with mortgages reserved for those who could stump up the cash for a large deposit. Happily, the tide appears to be turning – research from shows that the number of deals available to first-time buyers is on the rise, and that thanks to growing competition, they could save a small fortune on their mortgage repayments, too.

More competition = lower rates

The figures show that the number of mortgages available at 95% LTV has risen almost five-fold in the last two years, with there now being 195 such deals on the market – up from 42 in August 2013.

At the same time, the average rate on offer for a two-year fixed mortgage has reduced significantly, down from 5.67% to 4.43% today. A similar pattern can be seen in terms of the lowest rate in this sector, as well as in the average five-year rate, with the table below highlighting the change – and how rapidly rates have fallen – in more detail.

Aug-13 Aug-14 Today
Number of mortgages at 95% LTV 42 179 195
Average 2 year fixed (95%) 5.67% 5.37% 4.43%
Average 5 year fixed (95%) 5.42% 5.59% 4.86%
Lowest mortgage two-year fixed rate at 95% LTV 5.59% 4.79% 3.49%
Compiled: 11.8.15

Much of this has been driven by the Help to Buy Mortgage Guarantee scheme, with it acting as a "starting gun" for the sector, said Charlotte Nelson, finance expert at Moneyfacts: "It's fantastic news that first-time buyers are finally seeing the improvement in the mortgage market that they have craved for so long, fuelled by the launch of the Help to Buy Mortgage Guarantee scheme which made it almost acceptable to lend at higher loan-to-values again."

Once these deals hit the market, other providers outside of the scheme had no alternative but to compete in order to attract customers, and not only can first-time buyers benefit from more choice, but this fierce competition has caused rates to drop significantly to the lowest on records.

In fact, rates have dropped to such an extent that a typical first-time buyer would be able to save over £2,000 in the first year of taking out a mortgage – our figures show that, if they opted for the lowest two-year fixed mortgage on the market today, they'd be £2,005.68 better off in the first year than if they took the lowest rate in August 2013:

Monthly Yearly
Monthly repayments on Aug-13's lowest mortgage rate £867.26 £10,407.12
Monthly repayments on today's lowest mortgage rate £700.12 £8,401.44
Difference on the first month/year of the deal £167.14 £2,005.68

Repayments based on £140,000 borrowing amount over 25 years on a repayment only basis

As you can see, the amount of money saved can soon add up. It's also for this reason that those looking for a 95% mortgage would be wise to look at the whole market instead of focusing on just Help to Buy, as better deals can often be found outside of the scheme. "As an example, the average five-year fixed Help to Buy mortgage charges 5.12% today, whereas the average for those outside of the scheme is just 4.78%," added Ms Nelson.

However, it's important to remember that a mortgage isn't just about the here and now. While you may be able to afford a low-rate mortgage at current levels, the Mortgage Market Review means that you have to prove that you can afford it after any base rate rises, and with this being expected next year, it's time to make sure your finances are in order.

Quite simply, if you couldn't afford a mortgage if rates were a percentage point or two higher you won't be able to get one now, so make sure to take a cold, hard look at your finances and save as much as you can for that deposit, and you too could be able to take advantage of the most competitive mortgage market in years.

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.