Money Insider: New first-time buyer focus from Barclays and Virgin Money
Friday 18 January 2013
If the first two weeks of the new year is a taster of what's to follow, the mortgage market will be the sector where banks and building societies focus much of their efforts in 2013. There has been a slow but steady fall in mortgage interest rates since the Funding for Lending scheme was introduced last autumn, but lenders are suddenly becoming far more aggressive with their pricing in order to maintain a decent market share.
In the last fortnight we've seen rate cuts from Yorkshire Building Society, Nationwide Building Society and Leeds Building Society, but the high-profile moves by Barclays, slashing rates by up to 1%, and Virgin Money cutting some 90% LTV deals by up to 1.30%, reflects the increased desire for new business.
The stand-out new products include a two-year fix from Yorkshire BS at 1.99% with £995 fee for loans of 60% LTV, but it's the renewed appetite to help first-time buyers that's most encouraging.
It's not just a matter of cheaper deals from mutuals for those with a stake of 10% or less, we are starting to see cheaper deals and more innovation from the big banks too.
Barclays is a prime example, and has just launched its excellent new Family Springboard mortgage for first-time buyers with just a 5% deposit.
The home buyer has to find a 5% stake and their parents/family deposit must deposit a further 10% of the purchase price in a linked Barclays Helpful Start savings account for three years.
In return, the borrower gets a three-year fixed mortgage rate at 4.69%, and the family earns base rate plus 1.50% AER (currently 2% AER) on their savings. At the end of the three-year mortgage deal the savings will be returned with interest, provided the mortgage payments are kept up to date.
Although first-time borrowers with small deposits need to be aware that they are more susceptible to negative equity issues, with rental costs still soaring there will be no shortage of takers for this new Barclays deal.
It's never been an issue of not being able to afford the ongoing monthly repayments; it's finding the deposit that's proved the insurmountable hurdle for many.
Research released this week by Castle Trust revealed that even in the cheapest areas for housing a 20% deposit means having to save up around £15,000, and even excluding London there are many areas where you'd need to amass between £30,000 and £40,000, so it's easy to see the need for innovative solutions.
The Barclays Family Springboard deal is similar to the Lend a Hand initiative from Lloyds TSB, where although the mortgage rate is slightly lower, at 4.4%, it requires a more onerous 20% stake from family members, and therefore is out of reach for some parents.
With Virgin Money slashing rates on 90% home loans too, there's growing evidence that lenders are starting to move away from the safe haven of 60% LTV lending to a less congested higher risk market where better margins can be found. It's positive news for those who still have a dream of home ownership, and hopefully this focus on borrowers who have been crying out for affordable options will provoke a reaction from other high street lenders.
The competition for new business is good for existing borrowers too, and for anyone still on their lender's standard variable rate (SVR), now is a good time for a serious look at some of the lowest fixed rates we've ever witnessed.
With the average SVR at 4.6% APR, there are potentially big savings to be made and the opportunity to lock in at much cheaper rates for up to 5 years, so speak to an independent mortgage broker to check out what deals may be suitable for your circumstances.
Will loan rates dip below 5%?
The battle between personal loan providers rumbles on, particularly for borrowers with an A1 credit score. Tesco Bank and Clydesdale/Yorkshire Bank have been the front runners this year, with the latter cutting its rate to its lowest ever level at 5.1% APR for loans of £7,500 plus. Two years ago, the best deals were around 6.7% APR. While the cost of larger loans is falling, those looking for smaller sums of £2,000 to £3,000 still face rates of between 20% APR and 30% APR in some cases, so it's worth checking out peer-to peer lenders such as Zopa or RateSetter for cheaper deals.
Andrew Hagger is a personal finance analyst at moneycomms.co.uk
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