New data released by Moneyfacts.co.uk revealed, despite the Bank of England increasing interest rates last year, two-year fixed-rate mortgages for people with 5% deposits have become more competitive.
It found the average rate for those who need to borrow up to 95% of the property’s value had plummeted from 3.95% to 3.41%.
It’s being hailed as ‘fantastic news’ for prospective first-time buyers, who are usually considered a riskier bet by mortgage lenders. But it’s not such good news for those with bigger deposits of up to 30%, whose rates have gone up since the Bank of England increased interest rates to 0.75%.
The first-time buyer market is growing. Last month UK Finance, the body which represents mortgage lenders, revealed a rise in first-time buyers completing on mortgages. It attributed this increase to a combination of Government incentives, such as Help to Buy, and tempting mortgage rates.
Darren Cook, finance expert at Moneyfacts, said: “There clearly seems to be a concerted drive by mortgage providers to try and secure the business of potential first-time buyers, who are the lifeblood of the mortgage and property markets and it is encouraging to see rates decrease as a result of some healthy competition.”
Lower rates at building societies
When it came to offering the lowest rates overall to those with the smallest deposits, the building societies were leading the way.
Moneyfacts’ data revealed their average two-year fixed-rate mortgages for borrowers with 5% deposits were 0.10% lower than the typical rate offered by other mortgage providers. It was also 0.06% lower than the overall average.
Cook said building societies also accounted for a much greater proportion of the market for borrowers with smaller deposits.
However, he warned, despite the good news for first-time buyers there might still be hurdles in the mortgage process. He explained: “After the financial crisis the Financial Conduct Authority introduced clear affordability measures that mortgage providers must follow, so potential first-time buyers will still need to jump through several affordability hoops before they will find themselves on the first rung of the property ladder.”
