First-time buyers with larger deposits are in a significantly better position than those without, as the cost of a two-year fixed rate for those with a 10% deposit is rising at a slower pace than for those with less capital, according to Moneyfacts.co.uk.
While the average two-year fixed-rate for first-time buyers (FTBs) needing a 95% loan-to-value (LTV) mortgage has increased by 0.05% to 3.28% since September, FTBs with a 10% deposit have only seen an increase of 0.01%, taking the average rate for a 90% LTV mortgage to 2.65%. This means first-time buyers with a substantial 10% deposit can get access to rates 0.63% less than their 95% LTV borrowing counterparts.
At present, 95% LTV rates are rising faster than any other tier, with the rate gap between 95% and 90% LTV loans likely to widen even further over the next few months. Darren Cook, finance expert at Moneyfacts, said: “It appears that mortgage providers may be factoring in a larger proportion of default risk into rates at higher LTVs, where, among other things, competition and lower wholesale funding costs seem to be benefiting borrowers with a greater equity stake in their property.
“The difference in average rates between 90% and 95% LTVs has historically always been greater than differences in average rates between LTVs lower down the tier scale, so it is always worthwhile for a potential FTB to try to raise an additional deposit and attempt to step down the ladder to find a mortgage at lower interest rates.”
Falling rates for lower LTVs
Over the past six months, borrowers looking at lower LTV rates will have actually benefited from falling (not increasing) rates unavailable to 95% LTV buyers; at 85% the rate has dropped by 0.02%, at 80% by 0.06% and at 75% LTV again by 0.02%. First-time buyers that can afford to put down a heftier deposit could benefit from the falling two-year fixed rate at 60% LTV, which has dropped by 0.04% to 1.80% and is 0.11% lower than in April this year.
The good news for first-time borrowers restricted to 95% LTV mortgages is that there is a choice of 107 two-year fixed-rate mortgage products, of which 98 offer 35 or 40-year terms and a massive 94 products offer loans up to a maximum age of 75 years and above at the end of the term.
