First-time buyers offered help in housing market

Published 05th Jan 2011

Mortgage providers are launching more products aimed at giving first-time buyers a foothold on the housing ladder


Mortgage providers are heralding the arrival of better conditions for first-time buyers alongside the launch of several new mortgage products designed to help those struggling to get a foothold on the housing ladder.

Halifax has launched a new two-year, fee-free, fixed-rate first-time buyer mortgage at 5.79%, which it claims could save first-time buyers around £2,000 on costs once product fees, conveyancing costs, valuation fees and other costs are taken into account. Halifax claims that no other mainstream lender is currently offering first-time buyers a similar no-fee deal.

Newcastle Building Society (NBS) has launched a new 90% LTV (loan to value) deal, available at a two-year 5.15% (6.2% APR) fixed rate. The company said it could be, "the ideal solution for first-time buyers who want to take their first steps onto the property ladder".

HSBC said it hasn't launched any specific first-time buyer products but already has 90% LTV products in its January sale: a two-year product fixed at 4.99% that has a fee of just £99, as well as a lifetime tracker at Base Rate plus 3.79%, with no fees.

NBS spokesman Steve Urwin said the mutual was keen to support mortgage borrowing by developing products people need. "We are particularly keen to help first-time buyers as this is a very important market for the mortgage sector and, in fact, underpins the whole market. Buying a home is possibly the most important purchase you will ever make and the Newcastle offers a range of fixed-rate deals (which help with budgeting) and competitive interest deals, which can result in low monthly repayments. All of which are crucial things to look out for when you're looking to purchase your first home."

Stephen Noakes, commercial director of mortgages at Halifax, said: "First-time buyers are an important part of the housing market and while they are benefiting from the best monthly mortgage affordability in over a decade, buying a first home has always been an expensive process where every penny counts.

"Providing support to first timers by paying the fees on this product means that buyers can put that money to use supplementing their deposit or purchasing furniture or white goods for their new home. We're committed to offering our customers flexible and competitive products to help them achieve their home ownership ambitions."

But a closer look at the Halifax product shows that the 5.79% rate (not the cheapest on the market) is only available if the first-time buyer has a Halifax current account into which they pay £1,000 or more each month or those who hold an Ultimate Reward Current Account.

David Hollingworth, of independent mortgage broker London & Country Mortgages, says Yorkshire Building Society already offers a first-time buyer deal at 5.79% with no fee, free valuation, free legal work and £500 cashback.

"Nonetheless it is encouraging to see some early product launches aimed at the embattled first-time buyer," Hollingworth added. "Building bigger deposits is the big hurdle for first-time buyers so any increase in the number of mortgage deals at higher levels is more than welcome.

"I don't expect it to herald a landslide of new products at high LTV but more competition should help to improve the rates on offer. However the tiering of rates dependent on level of deposit is something that will remain a feature of the market this year."

Melanie Benn, director of independent mortgage broker Private Finance, said the rates on the Halifax and Newcastle Building Society products are "OK" for 90% LTV, and perhaps better than she has seen for those borrowing at 90% in recent months. "But I wouldn't advise a two-year fix at the moment," she said. "Rates are likely to start rising later this year and into next, so you would be remortgaging again just when rates are higher, which will be expensive.

"The five-year fixes look much better options. NatWest has one at 6.49% at 90% LTV or, better still, Skipton Building Society's five-year deal at 5.78% with a £995 fee. The fact remains that those borrowing at 90% have to pay a premium of a couple of percentage points on the rate. So the bigger the deposit you can drum up, the better."

Andrew Hagger at Moneynet.co.uk said it was encouraging to see some activity in the first-time buyer area, but highlighted that first-time buyers are paying almost 2% more on a 2-year fixed rate than someone with a 25% deposit.

He said that a first-time buyer taking out a £130,000 mortgage with a 10% deposit at 5.79% would face monthly repayments of £820.98. But the same buyer with a 25% deposit would be able to choose a mortgage with a rate as low as 2.99% with Saffron Building Society, which would reduce monthly repayments by over £200 to £615.80.

"Mortgage providers are making the right noises, but I can imagine take-up of these new products will be quite low as first-time buyers still face tough credit-scoring conditions," Hagger said. "Also, it costs lenders much more to offer 90% LTV products as they now have to keep higher reserves on their balance sheet if they offer higher-risk loans, so I doubt there will be a sudden flood of products. I'm not sure anything we're seeing launched this week will be enough to kick-start the mortgage market."

Mortgage lending rose by just £0.8bn in November according to Bank of England data, slightly above the previous six-month average increase of £0.7bn, but still well short of the £1.2bn increase in October. Analysts are still convinced that the housing market is now on a slow but steady downwards spiral and housing minister Grant Shapps told the Observer, on Sunday, that he wants a small and gradual real-time fall in house prices to make property more affordable over time.

Source: ' Guardian '

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