Mortgage rate hikes hit new buyers
Updated on 17 November 2008
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.
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.
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.
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