Are mortgages for first-time buyers and residential movers getting cheaper?
First-time buyers and home movers are in possession of a larger choice of mortgages than at any point since the start of the pandemic.
Lenders are continuing to produce hundreds of new deals for individuals buying a home, resulting in better rates.
Here, Which? explains what’s happening within the mortgage market and offers suggestions about how to pick the best mortgage deal.
Mortgage options hit post-lockdown peak
Home buyers are now able to take advantage of an increasing number of mortgage options at all loan-to-value (LTV) levels.
New analysis by Moneyfacts implies that the number of deals available on the market has risen by 56% in the past 6 months, with 269 new mortgages launched in the past month.
The current total of four,512 deals remains well underneath the 5,222 recorded in March 2021, but availability is improving each month.
Borrowers with the smallest deposits were worst affected by the withdrawal of deals throughout the pandemic, but that’s now changing, using the government’s mortgage guarantee scheme encouraging banks to bring back their deals. Moneyfacts states that 61 new 95% mortgages happen to be launched previously month alone.
Rates fall as lenders offer sub-1% deals
An rise in competition between lenders often means better rates for borrowers, and that’s certainly the situation right now.
In the past couple of months, we’ve seen a battle between lenders looking to provide the cheapest mortgage at 60% LTV.
In May, TSB launched the first sub-1% fixed-rate deal seen since 2021. The eye-catching 0.99% deal sparked a response from the 3 competitors, and rates now start at just 0.94%.
Competition has led to average rates on two-year and five-year fixed-rate mortgages falling previously month, meaning they’re now only just above pre-pandemic levels, as shown in the graph below.
Best home loan rates in July 2021
The mortgage market is moving quickly right now, which means the best rates are changing constantly.
The chart below shows the cheapest rates now available on two and five-year fixed-rate mortgages.
You can hover over a bar within the chart below to determine what provider currently provides the best rate.
The risks of comparing by rate alone
Mortgage minute rates are important, and you’ll wish to secure the cheapest rate you are able to – but some deals might not be as cheap as they seem.
In the chart above, you’ll observe that HSBC offers four market-leading five-year fixes.
All of these deals come with upfront fees of lb1,499 – considerably higher than the lb999 available from many other lenders.
This implies that the total cost from the mortgage may be more than if you took a deal with a slightly higher rate and cheaper upfront fee.
If you’re unsure concerning how to compare mortgages, consider taking advice from the whole-of-market large financial company.
Are first-time buyers the largest winners?
With house prices rising ever further out of reach, it’s a hard time to buy your first home.
There are a few crumbs of comfort, however, with mortgages rates dropping most quickly for those who have small deposits.
When the government launched its 95% mortgage guarantee scheme in April to inspire lenders to offer more 95% deals, the very first deals came in just below 4%.
Now, though, buyers could possibly get a 95% mortgage having a rate of just 3.25% (on the two-year fix) or 3.59% (on a five-year fix).
These minute rates are still more costly than before the pandemic, but show how options are improving for first-time buyers.
How much can one borrow when getting a mortgage?
When you apply for any mortgage, you’ll usually be able to borrow up to four-and-a-half times your annual household income.
So, if you and your partner each earn lb25,000, you’ll collectively have the ability to borrow as much as lb225,000 (four and a half times lb50,000), subject to passing the lender’s affordability checks.
Some lenders offer higher or lower income multiples depending on how much you’re borrowing, how big your overall earnings, or your profession.
Nationwide made headlines captured for allowing people with a 10% deposit to gain access to as much as five . 5 times their salary.
Should I select a two-year or five-year deal?
How long to fix for is among the most common questions asked by borrowers, with five-year fixes having dropped significantly on price over the past couple of years.
Five-year fixes come with one big benefit – you are able to secure a low mortgage rate for longer, setting your repayments for 5 years without having to worry about what goes on within the wider economy.
The big drawback, however, is early repayment charges (ERCs). ERCs are charged should you repay the mortgage during the fixed term (for instance if you move home) and could be around 5% of the overall worth of the mortgage.
Many deals allow you to ‘port’ your mortgage towards the new property fee-free, but a deal which makes financial sense on one home may not on the different one.
With rates on two-year and five-year fixes so competitive, it’s better to choose a term according to your present circumstances and future plans, rather than worrying too much about the possibility of rate rises.
