Mortgage blog: The market has ‘reopened for first-time buyers’
If you're looking to buy your first home, it's probably as easy for you now as it has been in the last five years. The government's Funding for Lending scheme has pushed mortgage rates down and the Daily Mail recently went as far to report that "the mortgage market has reopened for first-time buyers."
Even if you have saved a deposit, the choice of mortgage deals can be confusing. And many of your choices will be determined by the amount of money you have saved up. So, we look at the current first-time buyer market and explain how your deposit affects your choice of mortgage deals.
What deposit do you have? Loan-to-value explained
"When you come to find a new mortgage, the size of your deposit is probably the most important factor," says Keith Osborne, editor of WhatHouse.co.uk. "Lenders price their products in loan-to-value bands and, generally speaking, the higher the deposit you can out down, the better the mortgage deal you'll benefit from."
Your loan-to-value is simply how much you need to borrow as a percentage of the price of the property that you are buying. For example, if you are buying for £150,000 and you have a £15,000 deposit, you will need to borrow 90% loan-to-value.
Next, we look at how your deposit affects your mortgage choices.
How your deposit affects what deals you can choose from
A smaller deposit restricts your choice of mortgage deals and generally means that you will pay a higher interest rate. Recent data from Moneyfacts showed that the total number of mortgage products for those with a 5% or 10% deposit represents just 14% of the overall mortgage market. That means if you have a 10% deposit or smaller, you can only choose from around one in seven of the mortgage deals available from banks and building societies.
While there are some 95% mortgage deals available, the Daily Mail says that "realistically, to get a decent mortgage choice without Help to Buy, borrowers need a 10% deposit."
"Every additional 5% deposit that you can put down will open up a wider range of mortgage options," adds Osborne. "There are only around 55 mortgage deals available to borrowers looking for 95% and so if you can scrape together an additional 5% or 10%, you'll not only get a better choice of deals but also a much lower interest rate."
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