By Alison Steed
FIRST-TIME buyers are still finding it hard to get their foot on the first rung of the housing ladder as lenders are reluctant to improve the terms of their mortgage lending. Banks are trying to repair their balance sheets after the credit crisis, and are pricing their products according to the risk they are prepared to take on lending, resulting in far fewer loans available to those with a lower deposit, a far cry from the position even three years ago.
Borrowers holding a 10 per cent deposit have seen their average mortgage rate fall by just 0.12 per cent, even though the cost to the banks of lending the money has gone down by 4.35 per cent, according to data from financial statisticians Moneyfacts.
However, those with a 40 per cent deposit have seen their average mortgage rate drop by 1.86 per cent.
Michelle Slade, spokesperson at Moneyfacts.co.uk, said: “A higher margin for risk is expected on a 90 per cent loan-to-value (LTV) deal, but a 4.25 per cent margin over the cost of funding seems excessive and difficult to justify.
"Two years ago, rate-driven competition led to 90 per cent LTV deals being some of the most attractive rates on the market. Today, a 25 per cent deposit remains the level where most lenders are willing to do business. Anything smaller than this and borrowers will pay a hefty price.
"Sub-two percent rates are being advertised by lenders, but we have no way of knowing how many borrowers actually qualify for these deals. Having been tempted through the door, many are likely to be offered much higher rates. First time buyers, once seemingly the lifeblood of the property market are now apparently being ignored as lenders continue to cherry pick lower risk borrowers.
"It appears borrowers searching out a new deal are paying a higher price to subsidise existing customers, many of which are paying record low rates."
Borrowers with a 10 per cent deposit taking out a new two year deal on a £150,000 mortgage will only see their monthly repayment fall £11 from £988 to £977, said Ms Slade, while those with a 40 per cent deposit see a reduction of £165 per month from £998 to £833.
September 2007 September 2008 September 2009
Average Rate Margin over swap rate (6.22%) Average Rate Margin over swap rate (5.29%) Average Rate Margin over swap rate (1.87%)
Average 2 year fixed (90%) 6.24% 0.02% 6.63% 1.34% 6.12% 4.25%
Average 2 year fixed (75%) 6.40% 0.18% 5.99% 0.70% 4.66% 2.79%
Average 2 year fixed (60%) 6.35% 0.13% 5.85% 0.56% 4.49% 2.62%
Source: Moneyfacts.co,uk 21.9.09
