First-time buyers lose out as borrowing costs rise

The average first-time buyer is now paying an extra £118 a year in mortgage payments despite the recent launch of the Bank of England's £80bn Funding for Lending Scheme to cut the cost of borrowing, new figures reveal.

Data supplied to i by the financial information firm Moneyfacts shows a jump in the average cost of 90 per cent loan-to value loans – mostly the preserve of first-time buyers unable to stump up big deposits – since the FLS was launched at the beginning of this month.

The average cost of a two-year fixed-rate deal has risen from 5.37 per cent in July to 5.48 per cent in August – taking payments on the average £150,000 mortgage up by £9.82 a month to £919.34. The number of loan products made available to would-be homeowners with 10 per cent deposits has also edged lower, from 264 to 259.

A host of major lenders from NatWest to HSBC and Santander have all slashed the price of five-year fixed-rate mortgages over the past month as they tap into cheap FLS funding, which is also aimed at boosting lending to businesses.

Under the scheme, banks pay a knockdown fee of just 0.25 per cent to borrow as long as they increase their net lending.

But the latest figures show how first-time buyers are missing out on the largesse, with the cost of two-year tracker deals also rising. In contrast buyers able to afford a 25 per cent deposit have seen falling two-year fixed mortgage costs and a much steeper fall in the cost of five-year deals than those looking for a similar loan with only a 10 per cent deposit.

Matthew Pointon, property economist at Capital Economics, said: "The pressure on pricing in the housing market is generally downwards so banks still don't want to lend to people at high loan-to-values at the moment. We're pencilling in a 5 per cent fall in house prices for this year and next."

Before the scheme was launched, banks' funding costs were put under pressure by the eurozone debt crisis, which prompted many to raise their standard variable rates.

Experts warn it is too early to assess the full impact of FLS, although the Bank of England has said it is "encouraged" by the initial results.

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