There are more first time buyer deals available today compared with five years ago according to business analytics service Moneyfacts – but getting on the housing ladder is still a challenge.
First time buyers with a 5% deposit have some 276 deals across 53 different lenders to choose from which includes most of the well-known high street banks. This can be compared to just 59 deals available from 24 lenders in 2012 – with 75% of those lenders being mutuals. Average interest rates for two year and five year fixed deals also fell over the same period, from 5.93% and 5.89% to 3.98% and 4.43% respectively.
Despite this, first time buyers are still struggling to buy their first home. According to data from the Office of National Statistics, they must save an average of £21,000 for the deposit and £2,000 for moving costs. In London, this jumps to £55,000 for the deposit – and a minimum income of £60,000 will be required.
For those who can afford to buy a house, stringent credit checks and tough stress tests – designed to ensure buyers can make repayments if interest rates rise – are holding them back. Buyers must show that payments remain affordable if the interest rate rises suddenly by 3%.
The best deals
For those with a 5% deposit requiring a 95% loan-to-value, Nottingham Building Society has a 2-year fixed rate at 2.99%. However, doubling your deposit to 10% gets you a much more favourable deal – with Firstdirect offering a 2-year fix at just 1.89%. A few years ago, you might have needed a 40% deposit to access these low rates – now a 40% deposit will secure you an 18-month fix at just 0.99% with Santander.
There are other types of deals on the market to consider – for example, those offering a free valuation or cashback. However, experts recommend you consider the overall cost and value of the deal. For example, Barclays is offering first time buyers a cash back deal to help with stamp duty. Those purchasing a property valued between £100k and £150k can get £1,250 back – while those purchasing between £150k and £500k can get £2,500 back. The deal is a five year fix at 2.69% although you’ll need a 20% deposit to qualify. However, those who don’t need money for stamp duty may find a cheaper deal elsewhere.
The bank of mum and dad
A host of ‘family’ mortgages have sprung up on the mortgage which allow mum and dad – or granddad and grandma – to help children or grandchildren, without actually parting with any cash. Aldermore bank offer a family guarantee mortgage of up to 100% which allows savings to be deposited in a special account as security against the loan. For those with a 5% deposit, Barclays also offers a springboard mortgage and the guarantor’s money is returned after just 3 years with interest – provided that you don’t default on your payments.
Help to Buy still exists
Although the Help to Buy Mortgage Guarantee scheme disappeared at the end of 2016, the Government still operates a number of schemes that may assist first time buyers. These include Help to Buy Equity Loans which provide a 20% government loan to help boost the buyers’ deposit – and Help to Buy ISAs which offer a 25% boost to deposit savings. From April, LISAs will similarly offer a 25% boost but you’ll be able to save more each year. Shared Ownership is another route to owning your own home – this allows buyers to purchase a share of between 25 and 75% in the property, paying rent on the remaining share until they can afford to buy it outright.