Mortgage blog: Cost of 95% deals rises despite government scheme
Over recent months, the government's Funding for Lending scheme has been heralded a success. The availability of cheap funding for banks and building societies in return for them increasing mortgage lending has seen some of the lowest fixed-rate mortgage rates on record. Lending in the UK increased to over £12billion in April.
However, one of the key aims of the scheme - to improve the cost and availability of low-deposit mortgages - has failed, according to new figures. Indeed, the cost of a 95% mortgage has actually increased over the last 18 months, despite the government initiative.
Cost of 95% fixed rates rises by 0.14% in 18 months
Money Marketing reports that the cost of 95% loan-to-value (LTV) two-year fixed products has actually risen over the last 18 months despite government attempts to boost lending to those with small deposits.
Figures from the data analyst Moneyfacts show that borrowers with a 5% deposit are paying 14 basis points more today for a 95% loan to value two-year fixed rate than they were in September 2011. The average two-year fixed-rate 95% mortgage is now 5.46%, compared to September 2011 when it was 5.32%.
The average rate on a five-year fix at 95% LTV remains at 5.61%, the same level seen in September 2011. In addition, the number of 95% mortgage deals available in the market fell from 79 in March to just 52 this month - a 34% fall.
"These figures show that while the government's Funding for Lending scheme may have driven down mortgage rates for low-risk borrowers, first-time buyers are still struggling to find a deal," says Keith Osborne, editor of WhatHouse.co.uk. What has happened is that deals for people with larger deposits have become cheaper and cheaper while first-time buyers and those looking to move home with a small deposit are still being overlooked. Unless deals at 90% and 95% start improving, we're still unlikely to see the market recover fully.
"The government has announced that the Funding for Lending scheme is to be extended until 2015. I hope that this starts to result in a better choice of deals over the next couple of years and, crucially, a cut in the price of 95% fixed rates."
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