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

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."

Voices
There will be a chance to bid for a rare example of the SAS Diary, collated by a former member of the regiment in the aftermath of World War II but only published – in a limited run of just 5,000 – in 2011
charity appealTime is running out to secure your favourite lot as our auction closes at 2pm tomorrow
Arts and Entertainment
X Factor winner Ben Haenow has scored his first Christmas number one
music
Arts and Entertainment
James May, Jeremy Clarkson and Richard Hammond in the Top Gear Patagonia Special
tv
News
File: James Woods attends the 52nd New York Film Festival at Walter Reade Theater on September 27, 2014
peopleActor was tweeting in wake of NYPD police shooting
PROMOTED VIDEO
News
Claudia Winkleman and co-host Tess Daly at the Strictly Come Dancing final
people
News
i100
Extras
indybest
News
peopleLiam Williams posted photo of himself dressed as Wilfried Bony
Sport
Martin Skrtel heads in the dramatic equaliser
SPORTLiverpool vs Arsenal match report: Bandaged Martin Skrtel heads home in the 97th-minute
Arts and Entertainment
The Apprentice finalists Mark Wright and Bianca Miller
tvBut who should win The Apprentice?
News
The monkey made several attempts to revive his friend before he regained consciousness
video
Extras
indybest
News
Elton John and David Furnish will marry on 21 December 2014
peopleSinger posts pictures of nuptials throughout the day
Life and Style
A still from the 1939 film version of Margaret Mitchell's 'Gone with the Wind'
life
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Carlton Senior Appointments: Private Banking Manager - Intl Bank - Los Angeles

    $200 - $350 per annum: Carlton Senior Appointments: Managing Producer – Office...

    Carlton Senior Appointments: San Fran - Investment Advisor – Ind Advisory Firm

    $125 - $225 per annum: Carlton Senior Appointments: San Fran - Investment Advi...

    Sheridan Maine: Commercial Finance Manager

    Up to £70,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

    Sheridan Maine: Regulatory Reporting Accountant

    Up to £65,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

    Day In a Page

    The week Hollywood got scared and had to grow up a bit

    The week Hollywood got scared and had to grow up a bit

    Sony suffered a chorus of disapproval after it withdrew 'The Interview', but it's not too late for it to take a stand, says Joan Smith
    From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?

    Panto dames: before and after

    From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?
    Thirties murder mystery novel is surprise runaway Christmas hit

    Thirties murder mystery novel is surprise runaway Christmas hit

    Booksellers say readers are turning away from dark modern thrillers and back to the golden age of crime writing
    Anne-Marie Huby: 'Charities deserve the best,' says founder of JustGiving

    Anne-Marie Huby: 'Charities deserve the best'

    Ten million of us have used the JustGiving website to donate to good causes. Its co-founder says that being dynamic is as important as being kind
    The botanist who hunts for giant trees at Kew Gardens

    The man who hunts giants

    A Kew Gardens botanist has found 25 new large tree species - and he's sure there are more out there
    The 12 ways of Christmas: Spare a thought for those who will be working to keep others safe during the festive season

    The 12 ways of Christmas

    We speak to a dozen people who will be working to keep others safe, happy and healthy over the holidays
    Birdwatching men have a lot in common with their feathered friends, new study shows

    The male exhibits strange behaviour

    A new study shows that birdwatching men have a lot in common with their feathered friends...
    Diaries of Evelyn Waugh, Virginia Woolf and Noël Coward reveal how they coped with the December blues

    Famous diaries: Christmas week in history

    Noël Coward parties into the night, Alan Clark bemoans the cost of servants, Evelyn Waugh ponders his drinking…
    From noble to narky, the fall of the open letter

    From noble to narky, the fall of the open letter

    The great tradition of St Paul and Zola reached its nadir with a hungry worker's rant to Russell Brand, says DJ Taylor
    A Christmas ghost story by Alison Moore: A prodigal daughter has a breakthrough

    A Christmas ghost story by Alison Moore

    The story was published earlier this month in 'Poor Souls' Light: Seven Curious Tales'
    Marian Keyes: The author on her pre-approved Christmas, true love's parking implications and living in the moment

    Marian Keyes

    The author on her pre-approved Christmas, true love's parking implications and living in the moment
    Bill Granger recipes: Our chef creates an Italian-inspired fish feast for Christmas Eve

    Bill Granger's Christmas Eve fish feast

    Bill's Italian friends introduced him to the Roman Catholic custom of a lavish fish supper on Christmas Eve. Here, he gives the tradition his own spin…
    Liverpool vs Arsenal: Brendan Rodgers is fighting for his reputation

    Rodgers fights for his reputation

    Liverpool manager tries to stay on his feet despite waves of criticism
    Amir Khan: 'The Taliban can threaten me but I must speak out... innocent kids, killed over nothing. It’s sick in the mind'

    Amir Khan attacks the Taliban

    'They can threaten me but I must speak out... innocent kids, killed over nothing. It’s sick in the mind'
    Michael Calvin: Sepp Blatter is my man of the year in sport. Bring on 2015, quick

    Michael Calvin's Last Word

    Sepp Blatter is my man of the year in sport. Bring on 2015, quick