Mortgage rates for first-time buyers are now almost as cheap as pre-pandemic

Mortgage rates for buyers with 5 and 10 percent deposits fall at the highest rate of any home loan type as new buyers flock back to the market after the stamp holiday.

The typical two-year fixed rate on 10 percent mortgages, which are commonly used by first-time buyers in the market, fell 0.29 percentage points to 2.56 percent last month.

Meanwhile, two-year fixes on products of 5 percent saw an average drop of 0.25 percentage points to 3.32 percent over the same period, according to the latest figures from financial information service Moneyfacts.

Falling mortgage rates mean first-time buyers may find it easier to climb the ladder

Falling mortgage rates mean first-time buyers may find it easier to climb the ladder

The monthly decline was greater than 40% deposit mortgages, where rates have fallen dramatically in recent months and are currently at depths below 0.8% in some cases.

These declines bring rates on low-deposit mortgages very close to pre-pandemic levels.

The very lowest rates available are even cheaper, at 1.79 percent and 2.67 percent – although these come with hefty settlement costs that can make them more expensive overall.

“This is a really good time for a first-time buyer to get a really good mortgage deal,” said Matt Coulson, a mortgage broker at Heron Financial.

“We continue to expect things to slow down with the continued rate cuts, and so far that hasn’t happened, we’ve only seen rates fall.”

However, those looking to get up the real estate ladder may have limited time to act on these attractive deals.

Mortgage rates are likely to rise as the Bank of England base rate rises – an event now expected to happen as early as the end of this year.

“If inflation rises, we can see interest rates start to rise, especially if the Bank of England base rate goes up,” said Katie Brain, a banking expert at financial information service Defaqto.

She added that the rise in the cost of living could also make it harder for new buyers to pass lenders’ affordability checks.

These are the calculations that lenders perform based on the salaries and expenses of potential home buyers.

The affordability of ‘first-time buyers’ could also come under pressure as the cost of living rises,” Brain added.

The current interest rate cuts signify a significant improvement in the outlook for the mortgage market for first-time buyers, which saw 5 to 10 percent take deposit products off the market during the first national lockdown in 2020.

When they gradually returned, rates were pushed up much higher than before to reflect new lenders’ caution.

While the average fixed rate on high loan-to-value mortgages has seen its most dramatic declines in the past month, when you look at the best buys in these levels, there isn’t that much difference between what’s on offer now compared to pre-Covid, says Mark Harris, director of mortgage broker SPF Private Clients.

“It shows how high rates skyrocketed during the pandemic for those with small deposits, as lenders viewed these borrowers as higher risk.”

Rate type Best purchases, October 2019 best buy now
Two years fixed, 10% down payment Barclays @ 1.77%, £999 fee, £0 @ 2.08% Halifax @ 1.79%, £999 fee
Two years fixed, 5% down payment HSBC @ 2.69%, £0 fee Skipton @ 2.67%, £495 cost
Five years fixed, 10% down payment Virgo @ 2.25%, £995 cost Platform @ 2.16%, £1999 cost
or HSBC @ 2.49%, £999 fee
Five years fixed, 5% down payment Newcastle @ 2.9%, £499 Skipton @ 3.08%, £495 fee
Source: Mortgage Brokers SPF Private Clients

As of this month, the average two-year fixed rate on a 5 percent mortgage has fallen nearly 1.5 percentage points in one year, from 4.74 percent in October 2020 to 3.32 percent today, according to Moneyfacts.

The typical fixed rate of 10 percent for two years is now nearly 1 percentage point lower, falling from 3.64 percent to 2.56 percent — although product availability was severely limited a year ago as lenders recovered from the lockdown.

Looking at the five-year fixes, the typical interest rate on a 5 percent mortgage has fallen 0.45 percentage points and in the past year, while on a 10 percent deposit product, it has fallen 0.84 percentage points.

However, instead of looking for the lowest possible rate, buyers should also consider the impact of any arrangement costs.

By adding any fees to their monthly payments, they can calculate the total annual cost of their mortgage. It may be cheaper to take a higher rate with a lower or no fee – as in the example below.

You can do this for your own home purchase using the This is Money Mortgage Calculator.

lender Rate Compensation Yearly costs
Santander 2.50% £749 £9,840
Atomic Bank 2.59% £400 £9,868
Halifax 2.63% £200 £9,872
HSBC 2.49% £999 £9,879
Leeds BS 2.69% £0 £9,898
Source L&C/This is Money mortgage tool

New buyers are flowing back to the market

A combination of lower rates, lockdown savings and a calmer market is attracting more and more first-time buyers to the property market.

According to Experian, daily mortgage applications among borrowers in their thirties rose 14 percent in September 2021 compared to the previous month, while applications from people in their twenties rose 9 percent.

Average daily mortgage applications rose 20 percent for people over 30 compared to September 2021 with September 2020.

During the stamp duty, which was in effect from July 2020 to the end of September 2021, movers had to rush to finalize their purchases, pushing home prices up by as much as 10 percent or £25,000.

Mortgage rates for borrowers with 10% deposits are now as low as 1.67 percent

Mortgage rates for borrowers with 10% deposits are now as low as 1.67 percent

Mortgage rates for borrowers with 10% deposits are now as low as 1.67 percent

But this had less of an impact on first-time buyers, as they don’t pay tax on purchases under £300,000.

Now, some of them armed with savings they’ve built up in lockdown, are returning to the housing market.

James Jones, Experian’s head of consumer affairs, said: ‘Interest in a new home continues to be high as the stamp duty holiday comes to an end, especially among young people.

Many have used their savings to secure their perfect home, with more than a third of those over 20 (36 percent) in our survey saying the pandemic had helped them save for a down payment, rising to 41 percent of those who died. in his thirties.’

Should first-time buyers fixate themselves for five years in the face of a rise in the base interest rate?

While rates are higher than two-year fixes, a five-year fix would now allow a buyer to lock in a favorable interest rate and protect them from a potential rise in the Bank of England’s key rate – which would lead to mortgage interest rates rising – for longer.

An increase in the base interest rate, currently 0.1 percent, is already forecast in December.

While it will likely only rise by a small margin at the time, it could rise further in the next five years and is unlikely to return to as low as 0.1 percent anytime soon.

“The general consensus seems to be that the Bank of England will likely raise key interest rates incrementally to measure the impact on demand in the economy,” said Gerard Boon, mortgage broker at Boon Brokers.

“If this is true, we will probably see a step-by-step rise in mortgage rates in the coming years, but hopefully no sharp increases.”

However, a buyer taking a five-year commitment should consider moving home within those five years as not all mortgages can be transferred or ‘transferred’ to another property and there will be an early termination fee. of the deal.

Defaqto’s Katie Brain added: “It could be a good time to look at a 5-year fixed rate, as the difference between a two-year commitment and a five-year commitment is only about 0.1 percent on a mortgage. of 5 percent in some cases – although there is a bigger gap for products with 10 percent deposits.

“However, it does depend on the individual’s circumstances, as the early repayment charges typically apply for the five-year period.”

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