It's been a tumultuous few weeks for first-time buyers. First, base rate rose, which led to widespread concerns over higher mortgage rates and worsening affordability. Then the stamp duty cut was announced, which could help to even things out somewhat, and that's before the House of Lords progressed the discussion on making rental payments proof of mortgage affordability. So just how has it all panned out?
We'll start by looking at the kind of mortgage rate the typical first-time buyer might be expected to pay, and you may be pleasantly surprised! As the table below shows, the average two-year fixed rate mortgage at 95% loan-to-value (LTV) has actually fallen since the base rate rise was announced, while it has only edged up slightly at 90% LTV, with only the five-year 95% LTV rate seeing a notable rise of 0.03% in recent weeks.
This will come as welcome news to first-time buyers, many of whom had no doubt been concerned that 95% LTV mortgage rates would begin to ramp up dramatically, so it looks as though affordability should be largely maintained for most.
Some borrowers may still be feeling the pinch, particularly those seeking a five-year deal, but here, the key could be to try and save a little more for a deposit to bring the mortgage rate – and repayments – down to size.
Rachel Springall, finance expert at moneyfacts.co.uk, explains: "The average five-year fixed mortgage rate for borrowers with a 5% deposit is currently 4.55%, but those with a 10% deposit will find the average much lower at 3.29%. On a simple loan of £250,000, that equates to a difference in the monthly repayment of £173.11, or £2,077.27 over the year (based on a 25-year term), so it could pay to save for a while longer."
Remember, too, that it isn't all about rate. The fees and incentives that are available can make all the difference, and in some cases a lower fee and more generous incentive package could actually compensate for a slightly higher mortgage rate, particularly if cashback is offered. These deals are "much more likely to entice first-time buyers looking to save on the upfront costs of getting a mortgage," said Rachel, and cashback can be especially welcome as a way to pay for removal costs or appoint a solicitor, helping cut down on costs even further.
Last week's announcement that stamp duty has been cut for the vast majority of first-time buyers will have no doubt come as welcome news, as it could effectively slash upfront costs by an average of £1,600. This in itself could make it a little easier to get on the ladder, as you won't need to save such a huge amount beforehand, but if you're able to take advantage, you may want to do so sooner rather than later.
There are some who feel that the cut in stamp duty could actually lead to higher house prices, which means any stamp duty saving could be quickly negated by the need to stump up a higher deposit. Others argue that, "while the stamp duty changes are positive, they only go so far and won't make too much of a difference to those borrowers who are struggling to get on the property ladder in the first place, particularly in high-value areas such as London," said Rachel.
Additional challenges remain, too, as not only do new buyers have to find a home in their price range – something increasingly difficult in many areas given ever-rising house prices – they then need to save a big enough deposit, not to mention set aside extra for legal fees, application fees and removal costs.
They then need to meet strict affordability criteria and ensure they can comfortably afford to continue making repayments, and it's here that the motion to include rental payments as part of affordability checks could come in particularly handy.
The Government has been debating whether rental payments should be used as proof of mortgage affordability, something that makes a lot of sense. Indeed, renters with a flawless payment history have already proved themselves as being responsible, and given that mortgage repayments are often far less than typical rental costs, affordability should be assured.
This also means that would-be buyers are at a distinct disadvantage if they can't use such a flawless record as proof, as they could have limited record elsewhere of their creditworthiness. As such, "if rental payments were used in working out affordability it could be a huge step for FTBs to get on the property ladder," said Rachel, so while the change isn't set in stone yet, it's hoped that this could transform the credit scoring landscape.
In the meantime, you'll want to do everything you can to make your credit score as perfect as possible, and to make sure you're ready for buying that all-important home. That means checking your credit score for any anomalies and taking steps to improve things if necessary, and of course taking the time to build up a suitable savings pot to put down as a deposit.
Then it all comes down to finding the right first-time buyer mortgage deal – for some that could mean a 95% LTV mortgage, while others might be able to opt for a 90% deal or even lower, so get searching and find the perfect option for your needs.
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