People's Bank lends a hand to first-time buyers
The Post Office, which re-entered the home loans market last October, is offering a 90 per cent mortgage with an affordable rate to buyers with smaller deposits. Simon Read finds out how the experts view it
Saturday 15 May 2010
Lord Mandelson may have vacated his government office this week, but a legacy of his time as Business Secretary was his £180m plan to turn the Post Office into a people's bank. The move took a step closer this week as it launched its 90 per cent mortgages, aimed at helping first-time buyers.
The Post Office only re-entered the mortgage market last October with a range of fixed-rate and tracker loans. At the same time it trained some staff at large branches so that they could help to explain mortgage options to borrowers. This week's move is aimed at offering prospective homeowners a way to borrow if they have a deposit of only 10 per cent. It's not only available to first-timers, but also to home-movers.
"While there are existing 90 per cent deals available, many remain out of reach for most borrowers because the rates are too high," says the Post Office's director of personal lending, Marco Hughes. "Instead, we're offering more affordable rates that will allow more borrowers the opportunity to take out a mortgage with a smaller deposit. This should particularly help first-time buyers. However, we are not forgetting those looking to move lenders and are offering a new 'fee free' range to help them too."
Are the new deals competitive? We've asked a range of experts for their thoughts on the Post Office's move.
Before we hear their views, let's look at the details of the new offering. The new 90 per cent mortgage range includes a two-year fixed rate at 5.45 per cent, a three-year fixed rate at 5.99 per cent and a five-year fixed rate at 5.99 per cent. There's also a tracker at 5.49 per cent for those who want to back a hunch that rates will remain low over the next couple of years.
For those with a slightly larger deposit, the Post Office has also expanded its range with new 85 per cent deals including a two-, three- and five-year fixed and a tracker and has cut fixed rates on its existing 75 per cent and 80 per cent loan to value ranges by up to 0.36 per cent.
"It is great news that the Post Office is offering high loan-to-value mortgages as these are the hardest to come by in the present climate," points out Melanie Bien, director of the independent mortgage broker Savills Private Finance. "Before now, the Post Office insisted on a 20 per cent deposit, but the Government intends for it to be a 'people's bank', offering mortgages at higher LTVs of 85 and 90 per cent because there is a serious shortage of such products.
"Even more encouragingly, the rates on the 90 and 85 per cent deals are competitive. Borrowers at this level tend to pay a significant premium because lenders regard them as being higher risk than someone with a bigger deposit; however, the Post Office offering is more reasonably priced."
Andrew Hagger, analyst at Moneynet.co.uk, says the Post Office's move is just the latest trend in a greater focus by lenders on borrowers with smaller deposits. "Slowly but surely more mortgage providers are turning their attention to the first-time buyer market and these latest 'best buy' deals from Post Office follow hot on the heels of similar 90 per cent loan to value products launched by Co-operative Bank/Britannia on 30 April," he says.
"However, a 10 per cent deposit is still a big ask for many young people looking to get on to the housing ladder, although the temporary increase in the stamp duty threshold to £250,000 will help to offset some of the upfront costs."
It's not surprising that the rates are much higher than the lower loan to value deals due to the additional risk lenders have to take. However at least would-be new homeowners now have a far wider choice of products to ponder, Hagger points out. He says the number of 90 per cent loan to value mortgages has more than doubled in the last 12 months, with almost 150 deals available today.
"There has been a growing number of lenders dipping their toe at higher loan to value deals, but the products remain pretty thin on the ground, so any launch like this will come as a real boost to those with smaller deposits
and first-time buyers in particular," says David Hollingsworth of the mortgage broker London & Country. "The more lenders that re-enter at higher loan to value, the greater the level of competition should be, helping to draw more lenders into the sector and improve the products on offer to borrowers.
"However, considering the state's stake in other banks it is perhaps a surprise to see the Post Office – where the mortgages are funded by Bank of Ireland – being put forward by the Government as key in the development of first-time buyer products. But ultimately any growth at that end of the market has to be a welcome one," says Hollingsworth.
David Black, banking analyst at Defaqto, picks out the Post Office's five-year fixed at 5.99 per cent and the tracker at 5.49 per cent as being best buys. "However, if you already have a mortgage it's worth checking to see if your lender has any 'existing borrower only' deals, because some of these restricted mortgages are very competitive for high loan to value loans," he advises.
"The availability of 90 per cent loan to value mortgages is gradually increasing, and the Post Office's new rates are certainly a welcome boost in the right direction, but it remains the case that there is still a massive premium payable on high loan to value mortgages compared to the keenest rates which are available for mortgages up to a maximum of 75 per cent loan to value," Black says.
He adds that the offer of fee-free remortgages is a good one but that borrowers should base their decision on the total cost of the mortgage over the initial rate period, factoring in both the interest rate and the fees.
Borrowers should get advice before signing up to any deal, says Melanie Bien. "The big downside of these new Post Office mortgages is that they are only available direct from the Post Office, not through brokers. It seems a risky strategy for someone taking out their first mortgage, and at a relatively high loan to value, to receive no independent advice at all.
"A mortgage is such a big financial commitment that borrowers must ensure they understand exactly what they are taking on and compare any product with what else is on the market. It is vital that they do the sums to ensure that they can afford the repayments," says Bien.
End of hips 'great news for home market'
There was a instant boost for the property market this week as the new Government announced plans to scrap the much- criticised and expensive Home Information Packs (Hips).
"This is great news for the housing market and for house buyers, few of whom have paid much attention to these pointless packs," says Peter Bolton King, chief executive of the National Association of Estate Agents. "It is also good news for sellers, who will no longer need to shell out hundreds of pounds for a piece of pointless regulation that benefits no one."
Hips were introduced as a way to speed up the homebuying process by providing buyers with all the information about a property upfront. But plans to include a mini-survey in the form of a home condition report were scrapped amid arguments over who would pay for them and how they would be policed.
The packs ended up as an expensive extra for home sellers who had to shell out up to £500 for them. They included documents such as terms of sale, evidence of title and an energy certificate. The latter will be retained as they are mandatory under EU law.
"Energy Performance Certificates were the valuable part of the package, and we welcome its retention as an environmental policy," says Dominic Agace of the estate agency Winkworth. "It makes homes cheaper for people to live in as the overall housing stock improves in time, and in turn improves our overall energy consumption as a country."
Independent Partners: Get fee-free expert mortgage advice and find the right mortgage deal for you.
Bargain Hunter: Now's your chance to watch the best movies free of charge at home
How much lower will mortgage rates go?
The FTSE 100 is inching closer to its record high but can it maintain these levels?
MPs call for Equitable Life policyholders to be paid £2.8bn owed by government
Fuel poverty could claim 100,000 lives over next 15 years, warns energy charity
- 1 Scarlett Johansson new band 'already hit with legal complaint' from another The Singles
- 2 Husband and wife die holding hands within hours of each other after 67 years of marriage
- 3 What color is The Dress, white and gold or blue and black? An eyewitness gives a definitive answer
- 4 The remarkable archaeological underwater discovery that could open up a new chapter in the study of European and British prehistory
- 5 'Jihadi John': CAGE representative storms off Sky News accusing Kay Burley of Islamophobia
Oscars 2015: Birdman beats Boyhood as Eddie Redmayne and Patricia Arquette win big - as it happened
New theory could prove how life began and disprove God
Half of Ukip voters say they are prejudiced against people of other races
'Cash for access' scandal: Sir Malcolm Rifkind says 'unrealistic' for MPs to live on £67,000 salary
This is what it's like to be dead, according to a guy who died for a bit
Aqsa Mahmood branded a 'disgrace' by her parents after claims she recruited three UK girls flying to Middle East
iJobs Money & Business
£40000 - £50000 per annum + pro rata: SThree: SThree Group have been well esta...
£30000 - £37000 per annum: Recruitment Genius: Established in 1999, a highly r...
£250-£300 Day Rate: Jemma Gent: Are you a qualified accountant with strong exp...
£230 - £260 Day Rate: Jemma Gent: Do you want to stamp your footprint in histo...
Day In a Page
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads