Money Insider: A ray of hope for first-time buyers

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Most of the positive mortgage news over the last couple of months has been reserved for people fortunate enough to have a deposit of at least 40 per cent. However, there was finally some welcome news for those with a smaller stake to their name this week.

ING Direct showed it has a real hunger for home loans as it trimmed the cost of its already competitive two-year tracker mortgage by 0.2 per cent to 2.79 per cent, with a lower fee of £795 to boot. The big plus point is that the mortgage is available for house purchases or remortgages up to a more generous 75 per cent LTV.

For those looking to buy their first home there was equally encouraging news from HSBC, which is making an additional £500m of funding available for house purchases – as long as you can find a minimum 10 per cent deposit.

While the current interest rates for 90 per cent LTV borrowing will still deter some people, the actual cost of borrowing over a two-year term is potentially lower than it would have been in September 2007 at the height of the property boom.

For example, a home costing £130,000 two years ago would have meant finding a 5 per cent deposit of £6,500, plus stamp duty of £1,300. A two-year fixed rate mortgage from Britannia BS at the time for a £123,500 balance at 5.79 per cent would have involved monthly repayments of £780.

If the value of that property has now dropped by a fifth, today you'd be faced with a purchase price of £104,000. There is no stamp duty to pay and the monthly payments on a two-year fixed rate mortgage of £93,600 from HSBC at 5.99 per cent would see your repayments at a far lower £602 per month.

So, while finding an upfront deposit of £10,400 may seem a daunting prospect, the overall financial outlay over the two-year term is almost £1,500 lower than in 2007.

It's key borrowers and lenders pay more attention to the affordability of a mortgage rather than just a blinkered obsession with future property prices. While signing up for that first mortgage will still be too scary for many to consider, the Government and lenders need to start focusing more effort and funding on the first-time buyer sector if we are to kickstart the housing market.

*The ISA market has been rejuvenated on the back of the increased limits being made available to savers aged over 50 from next week, an opportunity that Bradford & Bingley looks keen to capitalise on.

This week, it launched a two-year fixed rate ISA paying a table-topping 3.75 per cent on balances of £1,000 and above. If you want a higher fixed rate on a cash ISA it will mean plumping for a longer term, for example a four-year tax-free fix with Julian Hodge Bank pays 4.15 per cent, and five years with Leeds Building Society 4.6 per cent. With the possibility that rates may pick up further in the medium term, a four- or five-year fix may just prove too long.

Saving is back on the agenda

The Office for National Statistics this week revealed that the UK savings ratio has hit a six-year high.

The figures show that the average UK household is now putting away 5.6 per cent of its monthly income for savings, compared with a mere 1.7 per cent at this time last year.

It's a positive swing upwards, and likely to have been driven in part by people's feelings of job insecurity. Although the recession has proved exceptionally tough for many, the bright side is that the savings habit is starting to return.

The spate of attractively priced savings products launched over the last six months will have helped encourage this greater level of saving, and this week there have been more competitive deals hitting the shelves.

Yesterday, Sainsbury's Finance upped the rate on its Online Saver account to 3.2 per cent AER, although customers should be aware that they are permitted a maximum of three withdrawals in 12 months. If you exceed this limit, the rate drops to a miserly 0.5 per cent.

If you're looking for more frequent access to your funds, then the Flexible Saver from Citibank pays 3.3 per cent AER including a 2.25 per cent bonus for the first 12 months.

Andrew Hagger is a money analyst at

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