27 Dec 2024

Fewer options for first time buyers

Risk remains the overriding factor in setting mortgage rates, with competition amongst lenders continuing to take a back seat.

Borrowers with a 10% deposit have seen just a 0.12% drop in the average mortgage rate, despite the cost of funding to lenders falling 4.35%.

By comparison, those with a 40% deposit have seen a 1.86% reduction in the average mortgage rate.

Borrowers with a 10% deposit taking out a new two year deal on a £150,000 mortgage will only see their monthly repayment fall £11 from £988 to £977, while those with a 40% deposit see a reduction of £165 per month from £998 to £833.

	September 2007		September 2008		September 2009
	Average Rate	Margin over swap rate (6.22%)	Average Rate	Margin over swap rate (5.29%)	Average Rate	Margin over swap rate (1.87%)
Average 2 year fixed (90%)	6.24%	0.02%	6.63%	1.34%	6.12%	4.25%
Average 2 year fixed (75%)	6.40%	0.18%	5.99%	0.70%	4.66%	2.79%
Average 2 year fixed (60%)	6.35%	0.13%	5.85%	0.56%	4.49%	2.62%
Source: Moneyfacts.co,uk 21.9.09

Michelle Slade, spokesperson at Moneyfacts.co.uk, commented:

“A higher margin for risk is expected on a 90% LTV deal, but a 4.25% margin over the cost of funding seems excessive and difficult to justify.

“Two years ago, rate-driven competition led to 90% LTV deals being some of the most attractive rates on the market. Today, a 25% deposit remains the level where most lenders are willing to do business. Anything smaller than this and borrowers will pay a hefty price.

“Sub-two percent rates are being advertised by lenders, but we have no way of knowing how many borrowers actually qualify for these deals. Having been tempted through the door, many are likely to be offered much higher rates.

“First time buyers, once seemingly the lifeblood of the property market are now apparently being ignored as lenders continue to cherry pick lower risk borrowers.

“It appears borrowers searching out a new deal are paying a higher price to subsidise existing customers, many of which are paying record low rates.”

Moneyfacts Group
Moneyfacts is the UK’s leading independent provider of personal financial information and our data is used and trusted throughout the financial industry.

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