First-time buyers foiled as mortgages disappear

Published 23rd Sep 2009

Number of mortgages available at 90% loan-to-value have plummeted by 75% over the past 12 months, figures show


The problems faced by first-time buyers were highlighted today as research showed a 75% fall in the number of loans available over the past year to those with just 10% to put down as a deposit.

The figures from financial firm Moneyfacts show a gulf between the number and cost of loans available to those with large deposits and those unable to raise more than 10%, as lenders continue to cherry pick the least risky customers.

Over the past two years, 90% loan-to-value (LTV) mortgages have all but disappeared – just 101 deals are available, of which first-time buyers are eligible to apply for 87. This time last year first-time buyers had a choice of 349 mortgages, while in September 2007 they could access 674 deals.

Meanwhile, the number of mortgages specifically being offered to those with a 40% deposit has increased sharply from 17 to 320. First-time buyers are eligible to apply for 218 of these, but with the average UK house price at £155,885, according to Land Registry figures, that would mean raising a deposit of £62,354.

Analysis by Moneyfacts of the average cost of a two-year fixed-rate deal shows that first-time buyers unable to raise that kind of deposit have not benefited from falling interest rates. Rising margins mean the average rate on a 90% mortgage has dropped by just 0.12% over the past two years to 6.12%, even though swap rates have fallen from 6.22% to 1.87%.

Although margins have also increased on lower LTV loans, buyers with bigger deposits can find more competitive loans than two years ago. At 75% LTV, two-year fixed-rates are at an average of 4.66% compared with 6.4% two years ago, while those borrowing 60% are typically offered a rate of 4.49% compared with 6.35% in 2007.

Recent weeks have seen a flurry of price cuts and the launch of a deal with a rate of less than 2%, but mortgage brokers said times were still hard for first-time buyers. Andrew Montlake of the Coreco Group said: "The difference is not just in the rates but in the underwriting – it is a lot harder to get a loan at 90% than at 75%. You have to go through a lot of hoops for a 90% mortgage."

Montlake said would-be buyers were either taking longer to save or turning to their parents for help. Ray Boulger of broker John Charcol said a lack of funding and the expense of offering high LTV mortgages meant lenders were being fussy.

"Because there is not enough supply in the mortgage market lenders are cherry picking, and the business that is least profitable for them is the higher LTV lending."

Boulger added there were "a very small number" of 90% loans that offered good value, including HSBC's two-year discount deal with a rate of 3.89%.

Source: ' Guardian '

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