Lenders deny competition to first-time buyers
Potential first-time buyers continue to be excluded from the best mortgage deals, with risk the overriding factor in setting rates.
According to Moneyfacts.co.uk, competition among lenders is still taking a back seat with rates on home loans dipping a mere 0.12% on average for those with a 10% deposit, despite the cost of funding to lenders dropping 4.35%.
By comparison, those with a 40% deposit can expect a 1.86% reduction in the average mortgage rate, in response to lower borrowing costs for banks and building societies.
In terms of monthly repayments, borrowers with a 10% deposit taking out a new two-year deal on a £150,000 loan will only save £11 per month, with repayments reducing from £988 to £977.
However, for those with 40% of equity in their homes a reduction of £165 per month, from £998 to £833, would be typical.
Moneyfacts spokesperson, Michelle Slade, comments: “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.”
She believes that a 25% deposit remains the level where most lenders are willing to do business.
Referring to the sub-two percent rates currently being advertised by some lenders Ms Slade cautions: “We have no way of knowing how many borrowers actually qualify … having been tempted through the door, many are likely to be offered much higher rates.”