Money Insider: First-time buyers need the help of 95% mortgages
Saturday 26 May 2012
The latest figures released by the Council of Mortgage Lenders made grim reading this week, as it reported new lending was at its lowest for 12 months. It was estimated that £10.2bn was lent in April, almost 20 per cent lower than the March figures which were inflated due to first-time buyers trying to complete their purchases before the stamp duty concession came to an end.
Although the mortgage market has been fairly buoyant since the turn of the year, there is increasing concern that eurozone issues could have an impact on mortgage pricing and lead to lower levels of activity.
On a brighter note, Clydesdale and Yorkshire banks this week reaffirmed their continuing commitment to supporting first-time buyers and remain among only a handful of lenders prepared to lend up to 95 per cent of the property value. Last year these banks reported that around 13 per cent of approved mortgages were for first-time buyers with the average price of that first home coming in at £121,717.
The latest pricing changes see the 95 per cent LTV (loan-to-value ratio) mortgage from Clydesdale and Yorkshire cut to 5.99 per cent fixed for three years with the product fee scrapped. For those with a 10 per cent deposit, the rate has been cut to 4.99 per cent.
While the 95 per cent rate looks high when you compare it against the current 4.19 per cent deal from The Co-operative Bank for advances up to 85 per cent, regulatory constraints force banks to set aside between six and eight times as much capital reserves for high-value loans, hence some of the funding cost is passed on to the customer.
A lack of suitable, first-time buyer finance being made available during the last three years has fuelled the demand for rented property, and due to limited supply, rental costs are soaring.
So while the 5.99 per cent rate may seem steep, it's a full 1 per cent cheaper than Clydesdale and Yorkshire were charging last year, as well as no longer having to find a £599 product fee.
The option to be able to buy subject to finding a more realistic 5 per cent deposit (in this example £6,086) may still appeal when comparing the monthly cost with that of a rented property.
A 95 per cent mortgage based on the average first-time buyer property price of £121,717 equates to £115,630 and would require monthly repayments of £744.30 on a 25-year home loan.
If, on the other hand, you decided to try and save a bigger 10 per cent deposit as demanded by other lenders, your monthly payments at 4.99 per cent rate would be £639.75 per month, £105 per month less – a reasonable trade-off for that extra couple of years of hardship, struggling to amass the extra 5 per cent?
The mortgage market remains subdued and there's little likelihood of this changing in the short term, and with the stamp duty concession no longer available, first-time buyers need all the help they can get.
To keep things from grinding to a halt, those who can service a 95 per cent LTV mortgage should be able to do so.
Inflation fall benefits savers
There was better news for savers this week when the latest inflation figures revealed that the Consumer Price Index (CPI) measure fell from 3.5 per cent to 3 per cent in April, the lowest since February 2010.
To get a real savings return after tax, savers (paying basic-rate tax) need to attain a gross interest rate of 3.75 per cent, and while this isn't achievable on instant-access accounts, it is possible on fixed-rate bonds with a two-year term from the likes of Investec at 3.8 per cent and Close Brothers Savings at 3.75 per cent.
If you haven't taken advantage of your tax-free allowance for 2012/13, then there are plenty of opportunities to earn a rate higher than the 3 per cent CPI figure. For example, on one-year, fixed-rate ISAs, SAGA is paying 3.6 per cent, Santander 3.5 per cent, and Aldermore 3.3 per cent.
If you're not comfortable tying your money up, instant-access ISAs from Cheshire Building Society pay 3.35 per cent and Santander 3.3 per cent.
Andrew Hagger – Moneynet.co.uk
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
- 1 Nigel Farage: Me vs Russell Brand on Question Time – he's got the chest hair but where are his ideas?
- 2 Harry Potter fans can apply to the Hogwarts-inspired College of Wizardry
- 3 Jessica Chambers: 19-year-old woman 'doused with lighter fluid and burned alive' in the US
- 4 Russell Brand calls Nigel Farage 'poundshop Enoch Powell' in BBC Question Time debate
- 5 Orange Wednesdays are no more
Disgruntled RBS worker writes hilarious open letter to Russell Brand after anti-capitalist publicity stunt leaves him hungry
Nigel Farage's approval rating hits 'record low' as popularity suffers in wake of Ukip sex scandal
Nigel Farage defends Kerry Smith 'ch***y' comment: 'If you are going for a Chinese, what do you say you’re going for?'
Pakistan school attack live: Taliban kill at least 132 children in 'horrifying' massacre
Sony hack: Angelina Jolie branded 'seriously out of her mind' in further embarrassing leaked email saga
Panic Saturday: 13 million Britons spend £1.2bn – while 13 million others across the country live in poverty unable to afford food
iJobs Money & Business
$200 - $350 per annum: Carlton Senior Appointments: Managing Producer Office...
$125 - $225 per annum: Carlton Senior Appointments: San Fran - Investment Advi...
Up to £70,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...
Up to £65,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...
Day In a Page
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
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
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
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens