First Time Buyers Advised To Focus On Affordability

First-time buyers are advised to make sure to look beyond the property rate even if higher loan-to-value mortgages are back as revealed in this article by TheGuradian on September 15th, 2013.

First-time buyers are flooding back to the housing market as economic conditions improve, alongside fears that low mortgage rates won't last and a fresh housing bubble will push house prices beyond reach.

Mortgage lenders reported a 41% increase in first-time buyer numbers in July, while the National Association of Estate Agents says they account for a quarter of house purchases in August, the highest proportion since July 2010.

However, getting a deposit remains a stumbling block for the majority of those keen to buy. The latest figures from LSL Property Services show that the number of first-time buyers who were able to buy without help from their parents fell to 41% in July, from 51% in April.

House price rises in some areas of the country will lead some to fear that they cannot save at the same rate as prices climb, says David Hollingworth of broker London & Country. "If prices continue to rise, the deposits they have worked hard to amass could be eroded as a percentage of the purchase price."

High loan-to-value (LTV) deals such as Northern Rock's 125% mortgage, viewed by many as fuelling the appetite for credit ahead of the financial crisis, are not back on the shelf. However, lenders have started to offer more deals at higher LTVs, and there are plenty of options for borrowers with small deposits.

According to Moneyfacts.co.uk, there are 409 deals for borrowers with 5% and 10% deposits, compared to 321 in August 2012, and some of the rates on offer at 90% LTV are very competitive.

The lowest rates are available on deals fixed for two years. On Friday, Chelsea building society launched a two-year fixed-rate mortgage at a rate of 3.54% for borrowers with a 10% deposit, with a fee of £1,675. HSBC also offers a two-year fix, at 3.59% at 90% LTV with a £1,499 fee.

However, Hollingworth favours Skipton building society's two-year fix at 3.99% at 90% LTV with £160 cashback. "This deal is a good all round package with a low rate, no fee and cashback on top," he says. "There are lower interest rates on offer from other lenders, but the fees can be high, which will add a chunk to the overall value." Borrowers who can stretch to a 15% deposit could consider the two-year fix from Market Harborough building society at a rate of 2.79% and with a £995 fee. Chelsea also offers a two-year fix at 2.94% at 85% LTV.

A two-year fixed rate could appeal if you want to keep your monthly repayments down, but bear in mind that when that period ends you will move on to your lender's standard variable rate, which is likely to be higher. By that point interest rates may also have risen.

To cement your repayments for longer, there are several five-year fixes, although rates are higher. Nottingham building society offers one at 4.39% at 90% LTV with a £299 fee, while Chelsea offers one at 3.84% with a £1,545 fee. Tesco Bank has a deal at 3.69% with a £1,495 fee, and the Post Office has a rate of 3.75% with a £995 fee, both at 85% LTV.

There is still very little for borrowers who can only stretch to a 5% deposit, Hollingworth says, and rates are relatively high. Newcastle building society, for example, has a two-year fix at 5.99% at 95% LTV with a £195 fee.

Brokers warn that borrowing large amounts at record low mortgage rates may not be wise.

Adrian Anderson, director of broker Anderson Harris, says: "The important thing is not to overstretch yourself. So ask yourself: can you afford the deposit and the mortgage payments? Have you opted for a fixed rate to protect yourself against interest rate rises, if you think they are on the cards?"

Yet before buyers reach the stage of getting a mortgage, a lack of housing supply could cause problems. David Newnes, director of LSL Property Services, says: "Pressure is growing on the government's plans to lend a helping hand to the house building sector, as it needs a bigger lift. There's a lack of new homes being built, and as the number of buyers rises in line with the growing population, competition is getting stronger for the supply of properties."

Article Source: http://www.theguardian.com/money/2013/sep/15/first-time-buyers-focus-affordability