First-time buyers have faced a conundrum over the last couple of years. After years of house prices spiralling out of reach of the average first-time buyer, they have finally fallen.
But in a cruel twist, the mortgage market froze up last year and lenders began to demand bigger and bigger deposits, reserving their best deals for borrowers with a whopping 40% upfront. Not only did you need at least 10% to get a mortgage, even then it would be expensive and your choice was very limited. First-time buyers were frozen out again.
But there are signs that lenders are beginning to relax their criteria, offering competitive products to more borrowers - even those without a huge deposit.
The mortgage melt
At one end of the spectrum lenders have begun to offer more
mortgages to those borrowers with just 10% upfront - a group dominated by first-time buyers.
HSBC launched a new range of 90% deals with attractive rates - a two-year fixed-rate at 4.99%, for example. The products come with some strings attached but are a step in the right direction.
Lloyds TSB also launched its Lend a Hand mortgage last month, offering up to 95% of a property's value at a cheap 4.39% - but the borrower's parents (or some other ‘helping hand') must put up 20% of the property's value (which is held in a separate savings account).
LTV levels increasing
At the other end of the scale, changes have also been happening.
Previously, the most competitive mortgages were available to those with 40% deposit upfront (i.e. a 60% LTV, or loan-to-value), but some lenders have begun to allow borrowers with 25% and 30% deposits to access their most competitive deals.
For example,
HSBC recently made its best mortgages available up to 75% of a property's value rather than 60% - a move it estimated would open up the deals to an extra 20% of the UK mortgage market. And last month Abbey increased the maximum LTV on all its 60% fixed rates to 70%*.
Beginning of the end?
All of these changes in lenders' loan-to-value criteria point to a judgment by some that the worst is over for the housing market - indeed Nationwide said that average property prices rose by 1% in May. If lenders thought prices were going to continue falling they would still require large deposits to act as an equity buffer.
However, things are certainly not back to normal and lending criteria is very strict indeed. If you don't have a 10% deposit you will still struggle, and if you want your choice of the best mortgage deals in the market you'll still need that whopping 40%!
What are the best deals around?
If you have 10% upfront, Natwest's fee-free five-year fixed rate at 5.99% for first-time buyers is worth a look, as is Yorkshire Bank's three-year fixed rate at the same rate, with a fee of £599.
For those with 25% upfront HSBC's five-year fix at 4.39% is a market-leading rate (with a fee of £999). The cheapest two-year fix is Market Harborough Building Society's 2.89% deal, but it comes with a steep arrangement fee of £1,499.
If you are after a tracker rate you will need more than a 10% deposit. If you can muster 25% there's a good range of products, with First Direct's 2.89% offset tracker an attractive deal with a fee of £799.
Whatever type of deal you are after, it's still the case that the bigger your deposit, the better your
mortgage options.
* Rates correct at 02/06/2009.
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