Exclusive: First-time buyers feel the pain as home loan costs soar
Many borrowers must pay £118 a year more despite £80bn boost to lending
Tuesday 28 August 2012
The average first-time buyer is now paying an extra £118 a year in mortgage payments despite the recent launch of the Bank of England's £80bn Funding for Lending scheme to cut the cost of borrowing, new figures reveal.
Data supplied to The Independent by the financial information firm Moneyfacts show a jump in the average cost of 90 per cent loan-to value loans – mostly the preserve of first-time buyers unable to stump up big deposits – since the FLS was launched at the beginning of this month.
The average cost of a two-year fixed rate deal has risen from 5.37 per cent in July to 5.48 per cent in August – taking payments on the average £150,000 mortgage up by £9.82 a month to £919.34. The number of loan products made available to would-be homeowners with 10 per cent deposits has also edged lower, from 264 to 259.
A host of major lenders from NatWest to HSBC and Santander have all slashed the price of five-year fixed-rate mortgages over the past month as they tap into cheap FLS funding, which is also aimed at boosting lending to businesses. Under the scheme, banks pay a knockdown fee of just 0.25 per cent to borrow as long as they increase their net lending.
But the latest figures show how first-time buyers are missing out on the largesse, with the cost of two-year tracker deals also rising. In contrast buyers able to afford a 25 per cent deposit have seen falling two-year fixed mortgage costs and a much steeper fall in the cost of five-year deals than those looking for a similar loan with only a 10 per cent deposit.
Matthew Pointon, property economist at Capital Economics, said: "The pressure on pricing in the housing market is generally downwards so banks still don't want to lend to people at high loan to values at the moment. We're pencilling in a 5 per cent fall in house prices for this year and next."
Before the scheme was launched, banks' funding costs were put under pressure by the eurozone debt crisis, which prompted many to raise their standard variable rates.
Experts warn it is too early to assess the full impact of FLS, although the Bank of England has said it is "encouraged" by the initial results. But the Moneyfacts figures also showed an apparent boost for buy-to-let investors in August as landlords – usually with more cash behind them – also enjoyed a slight fall in the cost of two-year loans. Banks are pouring money into the buy-to-let sector with a 15 per cent rise in mortgage deals for would-be landlords in the last month alone.
The move continues the trend seen in the Council of Mortgage Lender's latest figures showing £3.9bn pumped into the sector between April and June. This is 18 per cent above a year earlier and nearly double the market trough for buy-to-let lending in early 2009, when just £2bn was lent.
Melanie Bowler at Moody's Analytics said of the FLS: "The plan could actually skew the residential market further toward rentals, should buy-to-let mortgage lending dominate. With mortgage deposit requirements likely to remain elevated, new lending may be concentrated towards cash-rich landlords."
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