Rates on mortgages for first-time buyers with small deposits have fallen ‘dramatically’ over the last year, according to the latest analysis.
Research by Moneyfacts.co.uk has revealed average interest rates on two-year fixed mortgages for borrowers with deposits of only 5% are currently at 3.30% which compares to 4.19% in October 2017.
It will provide a glimmer of hope for first-time buyers who are struggling to get onto the property ladder because of difficulties saving a big enough deposit.
Indeed, the analysis by Moneyfacts revealed the rates on mortgages with 5% deposits – known as 95% loan-to-value (LTV) mortgages – had fallen by so much they were nearly as cheap as the rates for less risky 90% mortgages.
According to Darren Cook, finance expert at Moneyfacts.co.uk, mortgage providers were offering such good rates on riskier mortgages because they wanted to secure the business of first-time buyers – a sector which is currently considered the lifeblood of the mortgage market.
First-time buyer numbers have been increasing according to figures from the banking trade body, UK Finance, which attributed the rise to incentives to help people onto the property ladder, such as Help to Buy.
Cook said: “This is fantastic news for potential first-time buyers who are looking to find their first step on the housing ladder.”
Caution
He added: “However, even though mortgage rates at the 95% LTV tier are falling, it may not be that simple; since the financial crisis, the Financial Conduct Authority (FCA) has introduced clear affordability measures that mortgage providers must follow, so potential first-time buyers will still need to jump through several affordability hoops before they find themselves on the property ladder.”
Article by Kate Saines for www.whatmortgage.co.uk