Has the mortgage market finally woken up to consumer demand, or are borrowers with small deposits being forced to pay over the odds?
The best current rate for mortgage borrowers with a deposit of just 5 per cent is 3.79 per cent, which is down from 4.64 percent in October 2014.
These rates seem like great news for all first-time buyers and about time they had some good news from the property market. The actual number of mortgage deals currently available to borrowers with only a small percent deposit has risen by more than a third since October 2014.
Currently on the market there are 182 mortgages available for prospective homeowners with only a 5 per cent deposit, that’s up massively from 141 in October last year.
And at the same time, both the best buy and the average charged on those mortgages have shrunk to their lowest since the recession.
The best rate available on the market for such loans is now just 3.79 percent, down from 4.64 percent in October 2014 while the rate on a fixed two-year rate is now at 4.79 percent. Compare that with 5.05 per cent 12 months earlier, and you get the idea.
Overall, in the UK market, there are now 57 percent more mortgages on offer for people with a deposit of just 5 percent than last year. (When the Help to Buy mortgage guarantee scheme encouraged high loan-to-value (LTV) lending)
There are now more 95 percent LTV loans available than at any time since the beginning of the recession. Plus over four times more than the 43 that were available when the market hit its low from August to October 2013.
But while the Help to Buy scheme fuelled the market for people borrowing a high proportion of their house’s value, now lenders are ever increasingly confident to offer such loans without the Government’s support.
Since January, only one in three of the 95 percent LTV loans were sponsored by the Help to Buy scheme.
For most potential first-time buyers, finding a 25 percent deposit is simply not possible. So the rise of 95 per cent LTV products is a light at the end of a very long and dark tunnel.
So the Government’s Help to Buy scheme has boosted confidence among lenders to begin offering such loans after a severe recession.
However, despite the drop in interest rates charges on 95 percent LTV loans, buyers are still being charged a premium for borrowing against a high percentage of their property’s value.
The price difference between an average two-year fixed-rate deal at 75 percent LTV and a 95 per cent LTV stands at 2.78 percent back in January.
As such, borrowers buying a home for £150,000 would be charged an average of £816 a month in repayments if they used a deposit of just 5 percent. Now compare that with monthly repayments of just £477 if they went to 25 percent of their property’s value!
And that difference in repayments adds up to a massive £4,068 across the course of a year.
Source : Zoopla
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