With the 95% loan-to-value (LTV) the only mortgage tier to see two and five year fixed average rates rise this month, research from Moneyfacts.co.uk has found that to get the lowest rate within the first-time buyer mortgage chart, borrowers have to opt for a deal that requires a guarantor to put down additional money as security.
The research carried out by Moneyfacts.co.uk found that there are currently 11 providers offering mortgages that require a guarantor on 29 products, seven of which offer rates below 3.00% and some of which can be fixed for as long as five years.
In fact, the lowest rate available in the first-time buyer mortgage chart is a 1.99% discounted variable rate for two years being offered by Progressive Building Society. In order to be eligible for this mortgage, first-time buyers require a family member to assist with the purchase by using savings of up to 10% of the purchase price/value as security. Borrowers should also be aware that this mortgage is only available to those living in Northern Ireland.
First-time buyers wanting to lock into a five year fixed rate mortgage will also find that the lowest rate available in the chart being offered on a guarantor basis. Barclays Mortgage is offering a rate of 2.75% fixed until 31 October 2024 and requires a guarantor to put 10% of the property purchase price in a Helpful Start account in order to secure this mortgage. After five years, the guarantor gets their money back, as long as the homebuyer keeps up their mortgage payments.
Research Moneyfacts.co.uk has carried out shows that in the last four months, the number of providers offering mortgages that require a guarantor has dropped slightly, and consequently the number of products has also decreased. In May 2019, there were 11 providers offering 36 mortgages that required a guarantor, while in September 2019, 11 providers were offering 29 products that required a guarantor.
One reason for this decrease over the last four months could be due to mortgage providers in general becoming more risk-averse when lending to first-time buyers on a high LTV. Recent research carried out by Moneyfacts.co.uk found that the only LTV to see average two and five year fixed rates increase between 23 August 2019 and 23 September 2019 was on a 95% LTV (by 0.03% and 0.01% respectively). As well as this, back in May, the head of the Prudential Regulation Authority (PRA) warned mortgage lenders that they were being watched ‘like a hawk’ in regards to offering riskier mortgage deals. This warning could have contributed to lenders becoming more cautious when lending on a traditionally riskier 95% LTV.
Saying this, the market for first-time buyers has overall become more positive for new homeowners, with rates becoming more competitive and house prices stagnating in many areas of Britain, especially in the South East and London. As well as this, research from Moneyfacts.co.uk shows that over the last six years there has been a rise in lenders offering mortgages that require a guarantor, which has increased competition and could have contributed to the fall in first-time buyer mortgage rates. The research shows that in May 2013, only six mortgage lenders were offering 31 mortgages that required a guarantor compared to the 11 mortgage lenders offering them today.
Lending to first-time buyers who have a 95% LTV, or for some mortgages a 100% LTV, is considered extremely risky to lenders. As a result, in order to offer low, competitive rates, providers sometimes prefer to have extra money placed against the mortgage as security, meaning that if the homebuyer defaults and cannot meet the mortgage repayments, they have additional money that they can use to help reimburse their costs, or a third party who can pay the mortgage if the borrower can’t. For mortgage lenders, this makes lending to first-time buyers with a high LTV less risky.
For first-time buyers, taking out a mortgage that requires a guarantor can often help them to get a more competitive rate, as our research shows the lowest rate overall in the first-time buyer chart requires a guarantor. It does, however, mean that, depending on the type of guarantor mortgage contract, the first-time buyer needs to have someone willing and able to put thousands of pounds against their mortgage loan to act as security or a guarantor who is willing to enter a legal contract that will require them to pay the mortgage if the borrower fails to do so, which for many first-time buyers can be difficult to achieve.
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.