Mortgage rates 'unhelpful' to first-time buyers - analysis » Housing » 24dash.com

First-time buyers are not receiving the full benefit from house price falls because of big hikes in mortgage rates for people with small deposits, figures showed today.

The best mortgage deal available for someone with only a 10% deposit has increased by more than 1% during the past year, despite the Bank of England base rate nearly halving from 5.75% to 3% during the same period.

The lowest rate currently available for people with a 10% deposit is a 6.24% variable rate deal from Yorkshire Bank, according to financial information group Moneyfacts.co.uk.

This is more than double the current Bank of England base rate of 3% and well up on the best mortgage available for a borrower with a 40% deposit of 3.99%, offered as a variable rate loan by HSBC and a one-year fixed rate deal by the Woolwich.

The best rate for people who want a fixed rate mortgage on a 90% loan to value ratio is 6.54% for a two-year deal from Britannia Building Society.

These rates for people with small deposits are well up on a market leading fixed rate loan of 5.35% offered by Stroud & Swindon Building Society 12 months ago to people looking to borrow 95% of their home's value, despite the Bank of England base rate being at 5.75% at the time.

First-time buyers taking out a typical £120,000 mortgage on this deal would have had repayments of £735 a month.

House prices have fallen by 15% during the past year, according to the Halifax measure, meaning that first-time buyers would now have to pay only £102,000 to purchase a comparable property.

This would have reduced their mortgage repayments by more than £110 a month if the 5.35% deal was still available.

But much of the savings made through house price falls have been wiped out by the higher mortgage rates borrowers now face.

A £102,000 mortgage at today's best buy rate of 6.24% for someone with a 10% deposit would cost £680 a month, only £55 less than borrowers would have paid on a leading rate when house prices were higher.

The difference is further reduced if people wanted to opt for a fixed rate deal, with a best buy rate of 6.54% costing £699 a month.

Both of these deals are also only available to people with a 10% deposit, while last year's best buy of 5.35% was available to people with only a 5% one.

As a result first-time buyers would have to save at least £10,200, nearly double the £5,000 they would previously have had to put down.

Excluding deals that are aimed specifically at first-time buyers, there are now only two deals for people with just a 10% deposit featured in the Moneyfacts best buy tables.

This is in stark contrast to this time last year, when all but four mortgages in the tables were for people borrowing 90% or more of their home's value, with the majority of loans aimed at people borrowing 95%.

There has been a steep reduction in the number of different deals available for people with only a 10% deposit with just 250 loans now available, compared with more than one thousand before the credit crunch first struck.

But 28% of these deals are also limited to people living in certain regions of the country, and once these are stripped out, there are only 180 loans available.

Unsurprisingly, figures from the CML showed that the average size of deposit put down by first-time buyers has increased during the past 12 months, rising from 10% a year ago to 16% now, as people try to qualify for better rates.

Miles Shipside, commercial director of Rightmove, said: "House prices are coming down but the deposit first-time buyers need has gone up, negating any reduction.

"First-time buyers are very important to the housing market, they are at the start of the chains."

He said the problems that first-time buyers, and also investors, faced in getting mortgages was one of the reasons why transactions were currently running at around half last year's level.