Why cheap loans aren't helping first-time buyers to get onto the property ladder

Published 26th Jan 2012

First-time buyers will struggle to get a mortgage in 2012, despite banks promising to increase the number of cheap deals available to them, experts have warned.

Mortgage brokers estimate around half of all buyers who have a 10 per cent deposit are refused a loan.

This is despite a sharp rise in the number of mortgage deals aimed at first-time buyers.

There are 332 deals for those with a 10 per cent deposit, compared with 199 a year ago and just 114 two years ago.

And the average two-year fixed- rate is 5.51 per cent, compared with 6.10 per cent a year ago and 6.48 per cent two years ago.

That means someone buying today would pay £922 a month on a £150,000 loan, compared with £1,011 two years ago — a saving of £89 a month, according to comparison site Moneyfacts.

High Street names trying to lure borrowers include Halifax, which is offering fee-free mortgages with £500 cashback; Nationwide, which has £500 off fees and loans for those with a 5 per cent deposit if they have saved with the building society for at least six months; and HSBC, which has promised to lend £3 billion to fund 27,000 first-time buyers.

‘Lenders have been offering more low-deposit mortgages. However, borrowers still need an excellent credit score to qualify for one of these deals,’ says Aaron Strutt, adviser at broker Trinity Financial.

Applicants are often unsuccessful because they have a poor credit score.

This could mean they have missed bill payments, are not on the register of voters or have never had a credit card and, therefore, have no history of using credit responsibly.

Many younger borrowers also have a poor credit score, having been unable to properly manage their card spending. This has a knock-on effect on their credit history.

Last year saw the number of mortgages approved down by a third compared to 2006. Experts say this year will be similar.

First-time buyers should always approach a mortgage broker to find the best deal. Many of the cheapest rates are offered by smaller building societies, rather than High Street banks.

Buyers with only a 5 per cent deposit can get a three-year fixed-rate with Mansfield BS at 5.49 per cent, with a £999 fee. Monthly repayments on a £150,000 mortgage would be £920.

Buyers with a 10 per cent deposit can get a two-year fixed-rate at 4.49 per cent with Chelsea BS, part of Yorkshire BS, though it comes with a hefty £1,495 fee. Monthly repayments would be £833.

Those wanting a tracker mortgage, which moves up and down in line with Bank of England base rate, would have an initial rate of 4.89 per cent with NatWest. It has a £999 fee, and monthly repayments would be £867.

Source: ' ThisIsMoney '

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