Five per cent deposits
Thanks to the Government’s mortgage guarantee scheme, low-deposit mortgages flooded onto the market in April.
These 95 per cent loan to value (LTV) products allow first time buyers to borrow up to 95 per cent of the property’s value with just a five per cent deposit.
In London, where Nationwide reports the average price of a first-time buyer’s home is £416,000, this means finding £21,000 upfront. Still a lot, but it is tens of thousands less than the minimum required just a few months ago.
These mortgages are great news for Londoners wanting to buy a home, but they are costly.
Halifax/Lloyds offers the cheapest two-year, fixed rate mortgage at 3.73 per cent on loans up to £500,000, plus a £999 fee. For zero fees, RBS/NatWest has the best two-year fixed rate at 3.9 per cent.
If you value the predictability of a longer fixed rate, look at Metro Bank. For the same £999 fee, they offer a five-year fixed rate at 3.89 per cent and let you borrow up to £570,000.
Apart from the expense, “applicants’ credit scores will have to be ‘excellent,’ rather than just ‘good’,” says Rosie Fish, mortgage expert at Habito.
Another key issue is whether you earn enough. These mortgages largely limit borrowing to 4.5 times income.
So while you may “only” need a £21,000 deposit to buy a £416,000 home, you will need an income of at least £88,000.
With ONS data showing the average salary is below £30,000, this will be out of reach of many first-time buyers, even on joint applications.
Nationwide’s Helping Hand
If affordability is your hurdle, try Nationwide’s Helping Hand mortgage. This allows first-time buyers to borrow up to 5.5 times their salary, the highest on the market.
By being able to stretch further, the minimum salary needed to buy a £416,000 home drops to a more achievable £68,000.
However, this mortgage is only available on 90 per cent of the property’s value. You need to provide the remaining 10 per cent. That’s £41,000 in our example.
You would then get a five-year fixed rate of 3.34 per cent (£1,499 fee applies). A 10-year fixed rate mortgage is also available.
“We continue to review the maximum LTV and are exploring opportunities to return to 95 per cent LTV lending in the coming months,” says Nationwide.
A low-deposit and high-income multiple mortgage may be just around the corner.
Mortgages for first-time buyers with higher deposits
If you have a higher deposit, use it to unlock cheaper deals.
A 15 per cent deposit means access to Virgin Money’s two-year fixed rate of 2.48 per cent (£995 fee). On a £350,000 mortgage, this equates to monthly repayments of £1,566. That’s more than £200 less a month than you’d pay on the same size mortgage in one of the government-backed schemes.
A 20 per cent deposit can see the rate fall below two per cent. Yorkshire Building Society offers the cheapest two-year fixed rate at 1.89 per cent (£1,499 fees).
Thanks to a good deposit, Sanbir Gill has just purchased a property in Walthamstow with a Barclays mortgage. “I saved relentlessly from early on, was patient in my search, and researched a great deal,” she says.
If you have a small or zero deposit and family and friends who want to help, but can’t gift you a lump sum, consider Barclays’s Springboard mortgage.
Your helpers deposit 10 per cent of your property’s purchase price into their Helpful Start account and they get it back with interest after five years.
This guarantee gives you a five-year fixed rate of 3.45 per cent with a five per cent deposit, or 3.65 per cent with no deposit.