Small deposit borrowers benefit from ‘lowest rates on record’
Interest rates on mortgages for borrowers with small deposits have reached their lowest level on record, according to data from Moneyfacts.co.uk.
Anyone taking out a 95% loan-to-value (LTV) mortgage with a fixed rate over two or five years will be able benefit from these reduced rates.
Moneyfacts said the average deals had plunged to their lowest since it started collecting records in 2007. Today, the average two-year fixed rate for the high loan products stands at 3.73%. This compares to 5.67% five years ago.
Meanwhile the average five-year fix for borrowers with 5% deposits is 4.08% which is a reduction on the 5.38% average from September 2013.
Good news for first-time buyers
It is being hailed by Moneyfacts as ‘fantastic news’ for many first-time buyers who often get the ‘hard end of the stick’ when it comes to rates.
And it comes despite the Bank of England increasing the base rate by 0.25% to 0.75% – a move which typically drives mortgage rates upwards.
Charlotte Nelson, finance expert at Moneyfacts, said many would have expected 95% LTV rates to rise but instead, in just one month, the average two-year fixed-rate has actually fallen from 3.95% to 3.73%.
She added: “Rates have not just simply fallen but have in fact reached their lowest levels since our records began.”
According to Nelson, the rate drop has been driven by lenders keen to tap into this ‘vital group’. She explained first-time buyers were often seen as the ‘lifeblood’ of the mortgage market and, as such, providing for them created a positive message.
As a result of this the number of lenders in the sector has grown in two years from 10 to 58.
What’s more, Moneyfacts revealed, first-time buyers were also benefiting from a boom in the number of mortgages available. The number of 95% LTV deals on the market is currently 345, which is 120 more than in September 2016.
Advice to new borrowers
Despite the strong range of products available to them, first-time buyers are being warned these deals still have significantly higher rates than the rest of the market. Therefore, it’s worth getting as much deposit together as possible.
Nelson said: “If borrowers are at all able to save even an extra 5% to move them into the 90% LTV bracket, they will be financially better off.”
She added: “With mortgage rates falling, borrowers looking for a 95% LTV mortgage have a great opportunity to get a lower cost deal than ever before. Moreover, they may need to shop around quickly, as with economic uncertainties ahead, only time will tell if these low rates are here to stay.”
Posted on September 25, 2018 by Kate Saines in ‘What Mortgage’ online.