Mortgage payments for UK first time buyers have fallen sharply
Image First time buyers in the UK with small deposits are making savings of more than £790 a year, when comparing monthly mortgage payments to the same time last year, new research suggests. This is in part due to competitive interest rates now available as monthly mortgage costs for first time buyers have fallen sharply, according to the latest Genworth Moneyfacts LTV tracker report.
The average house price for a first time buyer is £154,559 and for those with a 10% deposit, lower mortgage interest rates mean they can save £67 a month compared to what they would have paid if they’d taken out the same loan a year ago. This adds up to savings of £800 over the course of a year.
For those with 5% deposits, the monthly payment on a 95% LTV mortgage for an average first time buyer home was £66 per month lower in March 2016 compared to 2015, equating to annual savings of £792.
The report explains that part of the reason for the attractive rates is increased competition as the number of mortgage products at high LTVs has risen in recent months. The number of mortgages available for those with a 5% deposit jumped sharply from 195 in March 2015 to 267 in March 2016.
As a result, rates for 95% LTV mortgages reached a record low of 3.92% in March 2016, 0.80 bps lower than a year before. Rates for 90% LTV loans are also much cheaper, having fallen 0.92 bps to 2.82%.
However, the total amount of high LTV lending has stagnated even while overall lending has increased revealing that while lenders may be competing for the best customers in the high LTV bracket, they are more focused on increasing lending to customers with larger deposits.
Despite a climate which is ripe for high LTV lending and a rising numbers of available mortgages, lending to those with a 5% deposit, which saw a notable boost following the introduction of the Help to Buy Mortgage Guarantee (HTB2) Scheme, has subsequently flat lined.
“Lending to those with 5% deposits received a much needed boost following the introduction of HTB2, with the proportion of lending at this level climbing from 1.7% in the fourth quarter of 2013 to 3.1% in the first quarter of 2014. It reached a high of 4.2% of total mortgage lending in the second quarter of 2014 but stagnated at around 3% in 2015,” reported by propertywire.
The stagnation in lending to those with small deposits is particularly concerning given that the Help to Buy Mortgage Guarantee scheme is due to end after this year. With nothing scheduled to replace the scheme, the fear is that lending to this part of the market could continue to fall.
‘Competitive rates available for those with just 5% or 10% deposits mean they are able to make huge savings compared to what they would have paid for the same loan in previous years. This is important for a group who face numerous challenges to enter the property market, typically facing far higher costs than those with the parental support to gather together a larger deposit,’ said Simon Crone, Genworth vice president for mortgage insurance Europe.
‘High LTV lending received a much needed boost through the introduction of the Help to Buy Mortgage Guarantee, however it is concerning to see this already in decline while the rest of the market is going from strength to strength. Looking forwards, the high LTV market is facing a potential double blow from the end of HTB2 plus higher capital requirements for lenders offering mortgages to those with small deposits as a result of proposed Basel changes,’ he explained.
‘All the evidence points to the fact we have seen just a temporary restoration of high LTV lending, and when HTB2 finishes at the end of the year, appetite for lending to those with small deposits will decline further and many more hopeful first time buyers will be priced out unless they can secure help with a deposit. First time buyers are crucial to the health of the wider housing market and failure to adequately support them will have a knock-on effect to other home owners,’ he pointed out.
‘While the Government has put in place a series of short-term fixes, a permanent solution is the only way to resolve the housing crisis. Government intervention through Help to Buy has shown mortgage insurance is effective at encouraging high LTV lending without inflating risk or reducing standards. The private sector can now offer a longer term solution that removes risk from the taxpayer while boosting home ownership to a wider group,’ he added.