First time buyers are finally seeing some of the benefits of the mortgage price war as experts predict that interest rates could drop as low as 2 percent for those with smaller deposits.
Nationwide was the last lender to cut its deposit rate from 10 percent and cut 0.20 percent of its two-year term with a fee from £ 999 to 2.24 percent.
It also has an even lower interest rate of 2.14 percent on offer but with a fee of £ 1,499 which could make it more expensive overall depending on the size of the loan.
On the ladder: First-time buyers could benefit from falling mortgage rates
The only lower rate is NatWest’s 2.13 percent, also for a two-year term, which comes with a lower fee of £ 995.
Coventry Building Society and Halifax also offer low prices of 2.15 percent (with a fee of £ 999) and 2.19 percent (with a fee of £ 1,195), respectively.
According to the financial data service Moneyfacts, the average two-year fixed rate for a 10 percent deposit mortgage fell 0.14 percent and the five-year fixed rate by 0.13 percent between July and August of this year.
Buyers with a 5 percent deposit also benefit. After these loans were taken off the market at the start of the pandemic, they reappeared in the spring of 2021, in part due to the government’s mortgage guarantee program.
Here the state offers the mortgage lender to compensate part of the net losses in the event of repossession, which gives them more confidence to take on this riskier lending.
Since their reintroduction, the rates have fallen by around 1 percent and are now partially below 3 percent.
For example, the Coventry Building Society offers a two-year rate of 2.95 percent with a fee of £ 999, while Platform offers a contract of 3.09 percent with a lower fee of £ 900.
While those with larger deposits have benefited from rate cuts for some time, first-time buyers and those with smaller savings pots are only now seeing the benefits.
Why is this happening?
“Lenders are feeling more familiar with the prospects for the post-COVID economy, especially the employment situation, as it is now clear that filling vacancies is more of a problem than layoffs,” said Raymond Boulger, Senior Technical Manager, Mortgages at Broker John Charcol.
‘There was also a significant slowdown in home buying activity following the stamp duty rush in June.
“Lenders are plentiful and with fewer mortgage applications they have to be more competitive to get their desired market share.”
First-time home mortgages keep getting cheaper as high deposit rates bottom out
Although interest rates are falling, they are still higher than they were before the pandemic. This is not the case with deposits of 75 percent and more, as the following example from Boulger shows.
|Two year fix||Two year fix|
|40% deposit: 1.17% Halifax||40% deposit: 0.87% Halifax|
|25% deposit: 1.25% NatWest||25% deposit: 1.03% NatWest|
|15% deposit: 1.49% HSBC||15% deposit: 1.78% Halifax|
|10% deposit: 1.74% HSBC||10% deposit: 2.13% NatWest|
|5% deposit: 2.59% Newcastle BS||5% deposit: 2.95% Coventry BS|
|Five year fix||Five year fix|
|40% deposit: 1.44% HSBC||40% deposit: 0.99% HSBC / NatWest|
|25% deposit: 1.54% HSBC||25% deposit: 1.19% HSBC|
|15% deposit: 1.89% Coventry BS / Platform / TSB / HSBC||15% deposit: 2.21% platform|
|10% deposit: 2.19% platform / HSBC||10% deposit: 2.73% NatWest|
|5% deposit: 2.79% Hanley Economic BS||5% deposit: 3.35% Coventry BS|
At the end of the spectrum with larger deposits, rates are believed to be close to the bottom, with the lowest level currently available being 0.83 percent.
Starting from a high base, however, the deposit mortgages are likely to fall further by 5 and 10 percent.
“I think the high deposit rates are very close to their bottom now, but I expect further cuts in the lower deposit rates will further narrow the gap between the two as lenders can now have more confidence in the stability of the property market,” says Boulder .
Some even predict they’ll only get 2 percent, at least for buyers who can match a 15 percent down payment.
Sam Harhat, Head of Andrews Mortgage Services, said: ‘The gap between lower and higher deposits is still wide.
“In my opinion, we can expect a few more reductions in the lower deposit area – although they won’t go below 1 percent.
Mortgage rates for new homeowners with a 15 percent deposit could go as low as 2 percent
“In the next few weeks, we could see mortgages with 15 percent deposits at 2 percent and 5 percent deposits just under 3 percent as lenders continue to struggle against it.”
In addition to taking price into account, buyers should include the agency fee in their calculations. For example, a borrower who takes a low interest rate with an expensive fee of £ 1,499 might end up paying more overall than one who pays a higher interest rate but no fee.
>> Compare prices and fees and find out if you really get the best deal
Although lenders offer better interest rates to those with smaller deposits, many are still severely restricted on the types of property they lend.
For example, several loans are not available to buyers of new buildings or apartments, as the banks consider these investments to be riskier.
“Many first-time buyers have been put off by high interest rates and limited product options, especially when it comes to new homes,” said Mark Harris, CEO of mortgage broker SPF Private Clients.
‘While the lending situation is improving, this is mainly affecting older properties. Outside of government programs, there is still hesitation in considering 85 or 90 percent more for new buildings, especially apartments. ‘
Should first-time buyers wait for interest rates to fall?
Although it always depends on their own circumstances, first-time buyers who can wait a while before making their purchases can benefit from it.
Not only do house prices start to fall after the stamp duty holidays are over (first time buyers don’t pay for the £ 300,000 portion of their home purchase regardless), but if prices continue to fall they could also save on their monthly mortgage repayments.
For example, a first time buyer taking out a £ 200,000 30 year mortgage with the best current deposit of 5 percent would pay a 2 year fixed rate of 2.95 percent while if the interest rate was £ 838 per month on . if it fell 2.5 percent, they would pay £ 790.
However, Harhat cautioned that with the severely limited number of properties in the market after last year’s spending spree, buyers risk missing out on their dream home.
“With real estate this low, first-time buyers won’t want to wait too long to get better deals,” he said.
“My advice to serious buyers would be, instead of holding on to a small rate cut, get ready financially and be able to act quickly.
“You could be missing out on this perfect property if you wait for prices to change.”
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