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

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."

Start your day with The Independent, sign up for daily news emails
Life and Style
Steve Shaw shows Kate how to get wet behind the ears and how to align her neck
healthSteven Shaw - the 'Buddha of Breaststroke' - applies Alexander Technique to the watery sport
Arts and Entertainment
The sight of a bucking bronco in the shape of a pink penis was too much for Hollywood actor and gay rights supporter Martin Sheen, prompting him to boycott a scene in the TV series Grace and Frankie
tv
Sport
footballShirt then goes on sale on Gumtree
Voices
Terry Sue-Patt as Benny in the BBC children’s soap ‘Grange Hill’
voicesGrace Dent on Grange Hill and Terry Sue-Patt
Arts and Entertainment
Performers drink tea at the Glastonbury festival in 2010
music
Arts and Entertainment
Twin Peaks stars Joan Chen, Michael Ontkean, Kyle Maclachlan and Piper Laurie
tvName confirmed for third series
Sport
Cameron Jerome
footballCanaries beat Boro to gain promotion to the Premier League
Arts and Entertainment
art
News
ebookA unique anthology of reporting and analysis of a crucial period of history
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.

iJobs Job Widget
iJobs Money & Business

Guru Careers: Software Developer / C# Developer

£40-50K: Guru Careers: We are seeking an experienced Software / C# Developer w...

Neil Pavier: Management Accountant

£45,000 - £55,000: Neil Pavier: Are you looking for your next opportunity for ...

Sheridan Maine: Commercial Accountant

£45,000 - £55,000: Sheridan Maine: Are you a newly qualified ACA/ACCA/ACMA qua...

Laura Norton: Project Accountant

£50,000 - £60,000: Laura Norton: Are you looking for an opportunity within a w...

Day In a Page

Abuse - and the hell that came afterwards

Abuse - and the hell that follows

James Rhodes on the extraordinary legal battle to publish his memoir
Why we need a 'tranquility map' of England, according to campaigners

It's oh so quiet!

The case for a 'tranquility map' of England
'Timeless fashion': It may be a paradox, but the industry loves it

'Timeless fashion'

It may be a paradox, but the industry loves it
If the West needs a bridge to the 'moderates' inside Isis, maybe we could have done with Osama bin Laden staying alive after all

Could have done with Osama bin Laden staying alive?

Robert Fisk on the Fountainheads of World Evil in 2011 - and 2015
New exhibition celebrates the evolution of swimwear

Evolution of swimwear

From bathing dresses in the twenties to modern bikinis
Sun, sex and an anthropological study: One British academic's summer of hell in Magaluf

Sun, sex and an anthropological study

One academic’s summer of hell in Magaluf
From Shakespeare to Rising Damp... to Vicious

Frances de la Tour's 50-year triumph

'Rising Damp' brought De la Tour such recognition that she could be forgiven if she'd never been able to move on. But at 70, she continues to flourish - and to beguile
'That Whitsun, I was late getting away...'

Ian McMillan on the Whitsun Weddings

This weekend is Whitsun, and while the festival may no longer resonate, Larkin's best-loved poem, lives on - along with the train journey at the heart of it
Kathryn Williams explores the works and influences of Sylvia Plath in a new light

Songs from the bell jar

Kathryn Williams explores the works and influences of Sylvia Plath
How one man's day in high heels showed him that Cannes must change its 'no flats' policy

One man's day in high heels

...showed him that Cannes must change its 'flats' policy
Is a quiet crusade to reform executive pay bearing fruit?

Is a quiet crusade to reform executive pay bearing fruit?

Dominic Rossi of Fidelity says his pressure on business to control rewards is working. But why aren’t other fund managers helping?
The King David Hotel gives precious work to Palestinians - unless peace talks are on

King David Hotel: Palestinians not included

The King David is special to Jerusalem. Nick Kochan checked in and discovered it has some special arrangements, too
More people moving from Australia to New Zealand than in the other direction for first time in 24 years

End of the Aussie brain drain

More people moving from Australia to New Zealand than in the other direction for first time in 24 years
Meditation is touted as a cure for mental instability but can it actually be bad for you?

Can meditation be bad for you?

Researching a mass murder, Dr Miguel Farias discovered that, far from bringing inner peace, meditation can leave devotees in pieces
Eurovision 2015: Australians will be cheering on their first-ever entrant this Saturday

Australia's first-ever Eurovision entrant

Australia, a nation of kitsch-worshippers, has always loved the Eurovision Song Contest. Maggie Alderson says it'll fit in fine