The average mortgage cost for first time buyers fell this month as banks began to focus their attack in the rate war on low-deposit deals.
Rates across the 95% loan-to-value range fell to an average of 3.69% during August, as it was revealed that the average UK house price hit an all-time high in June.
“Unsurprisingly with such a scramble for buyers to complete before the end of June and save thousands on Stamp Duty, there was an eagerness to pay over the odds to secure a property” says Andy McBride, director of Cleerly. “This pushed the average UK property to an all time high in June of £266,000, further widening the gap between those hoping to get on the ladder, and the bottom rung itself.”
With banks engaged in a seldom seen rate war at present, the initial focus was on low loan-to-value levels, where the lowest, headline-grabbing rates reside. Now though, it appears that banks are targeting those with smaller deposits to encourage first time buyers to take the plunge.
“Headlines will always be made when banks posture by launching historically low rates, usually up to 60% loan-to-value” adds McBride. “In reality however, the fact that they have begun to slash rates at the highest LTV levels is even more striking, as this is the highest risk business area traditionally.”
“The lowest rate on offer for those with a 5% deposit is currently 3.19%; that is lower than the equivalent product with a 15% deposit just five years ago, showing just how much the financial market has moved and is looking to bounce back from the pandemic.”
The average rate of a two-year and five-year fixed rate deal with a 10% deposit dropped by 0.14% and 0.13% respectively this month, according to data from Moneyfacts.
“Lenders still have targets for 2021 to hit in terms of mortgage funds advanced, and rate cuts are a great way to bring new business in” continues McBride. “The fact that the rates being hit this time are those aimed at first time buyers is great for those thinking of making the jump, and it tells you how little margin there really is in the sub-1% interest rate area that has attracted such headlines.”
The latest Help to Buy scheme from the Government, launched in April this year, was aimed at those with a small deposit, by guaranteeing any loss over and above the customer provided deposit. It seems that a knock-on effect however is that those lenders who do not participate in Help to Buy have gained confidence from the market impact, and are open for business themselves.
As ever, however, there is a warning for the nations Contractors who are seeking a mortgage. Credit scoring at 90% loan-to-value and beyond is at its most rigorous, and therefore the impact of a declined application at this level can have catastrophic effects on future mortgage prospects.