Mortgage blog: Government scheme failing to help first-time buyers

Posted 19 June 2013

First-time buyers have access to fewer mortgage deals than before the launch of the government's Funding for Lending scheme. That's the conclusion of new research which has cast doubt on the effectiveness of the government initiative designed to help more people gain access to low cost mortgages.

Data from Moneyfacts has found that while the cost of low-deposit mortgages has fallen since the scheme launched last July, the number of deals available to buyers has actually reduced.

Just 54 mortgage deals available to borrowers with 5% deposit

The government's Funding for Lending scheme was designed to give banks and building societies access to low cost funds in return for them increasing their lending to homeowners and small businesses.

While the cost of mortgage deals has fallen sharply over recent months, the Daily Telegraph reports that "the choice of mortgages for struggling first-time buyers has shrunk...despite Government efforts to unblock the housing market."

There are currently just 54 products available for borrowers looking to borrow 95% of a property's value - equivalent to just 1.9% of all the mortgages available. This figure has actually fallen in the last 12 months from 62 deals this time last year - 2.7% of all mortgage deals.

"This data shows that the government scheme is clearly not benefiting those people it was designed to help," says Keith Osborne, editor of "While mortgage rates may have fallen, first-time buyers are still faced with a tiny choice of deals which is making it hard for them to find the mortgage they need."

The number of deals available to borrowers with a 10% deposit has risen slightly over the last year. However, the total number of products for those with a 5% or 10% deposit has stayed the same as a year ago and represents just 14% of the overall mortgage market.

Moneyfacts found that while the number of 95% deals has fallen, the average interest rate charged on such loans has edged down, from 5.48% in July 2012 to 5.32% by this month.

Sylvia Waycot, editor at Moneyfacts, said that despite various government initiatives "little has actually changed" for many people looking for their first mortgage. She continued: "It might have all been very different had Funding for Lending been specific in ensuring lenders lent higher LTVs. But, as the main proviso is that they simply increase their lending books, we are unlikely to see much change from the conservative lending model and one opportunity to make a difference to this important market is lost."

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