Spike in new high LTV mortgages gives hope to first-time buyers

New data revealed although rates are looking far less competitive for first-time buyers than they were before the pandemic began in February last year, this area of the mortage market is showing signs of recovery from its low point just a few months ago.

Indeed, most lenders pulled their 90% loan-to-value (LTV) deals, which are commonly used by first-time buyers with 10% deposits to put down on their home, as they managed problems caused by Covid-19.

But new data from Moneyfacts.co.uk showed although the number of products were not at the same levels experienced in February 2020 when there were 776 such deals, there were still 277 this month – a far cry from the lowest point in the market.

Moneyfacts revealed the number of overall products in the 90% LTV tier had risen by 29 in just the first two weeks of this month alone. Between the start of January and beginning of February the market contracted by 88.

Incentives

What’s more, buyers with a 10% deposit are also benefiting from more cashback offers in the market, according to the latest analysis, which revealed mortgage deals with incentives increased from 50 to 83 over the past month.

But when it came to the rates buyers on high loan-to-value products were paying, Moneyfacts’ data showed the average two-year fixed rate of 3.56% was almost 1% above the same rate a year earlier.

Meanwhile, the five-year fixed rate equivalent was at 3.68%, which was a drop of 0.04% since the start of the month but was also 0.77% above the February 2020 rate.

Eleanor Williams, finance expert at Moneyfacts.co.uk, said while the end of the stamp duty holiday may be bad news for some buyers, those taking their first steps on to the property ladder may have an advantage if they are below the £300,000 tax threshold already in place.

“Options for those with a 10% deposit have improved greatly over recent months, with 15 more providers offering 90% LTV products since the start of this year, and the number of products themselves increasing by 117 since the beginning of January,” she said.

“This means that there is far greater choice for would-be buyers in this area of the market. There are also more cashback deals now available to first-time buyers with a 10% deposit too.

“While average rates – historically often higher than those available in lower LTV brackets due to risk – are above where they were a year ago, those for whom the longer-term stability of a five-year fixed may suit their circumstances may be pleased to note this rate has reduced 0.04% since the start of this month alone.”

Hurdles

Williams pointed out there were still a number of challenges for first-time buyers not least high house prices and low savings rates.

But, she added: “Their options have been steadily increasing, and added to the news that the homebuyers using the current Help to Buy equity loan scheme have a further extension on the deadline for completions, there is hope that 2021 may see more potential home-buyers take that first step onto the property ladder.”