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Borrowers have been treated to record low mortgage rates in recent times, but it seems that there could be changes on the way, as while rates remain at their lowest for those with large deposits, research from moneyfacts.co.uk shows that for those with a small deposit the trend seems to be reversing.
Indeed, our figures show that the average two-year fixed mortgage rate at 95% loan-to-value (LTV) has increased by 0.10% since April, and by a shocking 0.35% since the start of the year, which means many first-time buyers (FTBs) could be disappointed when they start their mortgage search. Those with a 10% deposit haven't escaped too lightly either, as while movement has been less significant, rates are still on the up, as the table below highlights:
|Average Two-Year Fixed Rate||Jan-17 ||Apr-17||Jul-17|
"Despite providers competing to sit at the top of the Best Buy tables, it is clear to see that the wind is once again shifting around for those at higher loan-to-values," said Charlotte Nelson, finance expert at moneyfacts.co.uk. "This is disappointing news for first-time buyers who have struggled to gather enough cash to put towards a deposit, only to now find that rates are starting to rise."
In fact, our calculations show that borrowers looking for a two-year fixed rate at 95% LTV will find that monthly repayments will be £29.10 more expensive if they take out a typical mortgage today compared to January (based on a £150,000 mortgage over 25 years on a repayment-only basis), adding up to £349.20 over the year. This rate reversal isn't just affecting the two-year market, either, with the average five-year fixed rate at 95% LTV rising from its lowest ever point of 4.37% in January 2017 to 4.55% today, impacting those seeking long-term security.
"The increase is largely the result of the inflationary pressures the economy is facing," explained Charlotte. "As inflation rises, borrowers' incomes get eaten away and the probability of a borrower defaulting rises. The added speculation of a possible base rate rise in the near future has seen providers re-evaluate the lows that borrowers were starting to get used to."
However, it isn't all doom and gloom. "First-time buyers might feel like they can never catch a break, facing large deposits and now rising rates, but there are more deals on the market right now than at any time since the financial crisis," said Charlotte. This means you've now got far more choice than you've had in years, and remember that the rates quoted are just averages – it's perfectly possible to find lower-rate deals, you just need to get out there and look!
You may want to be quick about it though, as Charlotte concludes: "With the Bank of England scrutinising high LTV lending, this upward pressure on rates looks like it may continue. Borrowers looking for a deal at a higher LTV will need to act now if they want to make the most of low rate deals before their time is up."
Don't delay – start comparing the best first-time buyer mortgages to find a low rate deal before they edge up.
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