First time buyer mortgage affordability improving

First time buyer mortgage affordability improving

19 April 2010 / by Rachael Stiles

First time buyers are still facing an uphill battle in getting a mortgage, especially without a sizeable deposit, but the market has become more affordable since the credit crunch.

Moneynet.co.uk has calculated that first time buyer mortgages have become markedly cheaper since 2007, recording a fall in the total cost of buying a house – including house prices, mortgage balances, interest rates, and monthly repayments.

Based on the total cost of a first time buyer mortgage over three years, repayments have fallen to £24,306 in the first quarter of 2010, compared to £29,258 in quarter three of 2007 – a saving of £4,951.

The average first time buyer property value is down 11.54 per cent to £115,000; the average mortgage taken out has fallen £20,000 to £103,500, and the average three year fixed rate mortgage has fallen from 6.19 per cent to 6.03 per cent. This has all resulted in the typical monthly repayment falling £137, from £812 to £675.

But, while the average cost of a mortgage might have fallen, the deposit required has doubled, from £6,500 to £11,500, making it more difficult to secure a home loan.

Andrew Hagger, spokesperson for Moneynet.co.uk says that those contemplating buying their first home are facing a better financial situation if they have the deposit to get a mortgage in the first place.

He said that "if they can overcome the deposit hurdle, albeit a very steep one, then the overall situation is far better than it was at the peak of the housing market in autumn 2007."

Financial research company Defaqto has found that borrowers with small deposits looking for higher loan to value mortgages are paying "substantially more" in mortgage rates than other borrowers, whereas there used to be little difference in rates between a 90 per cent and a 75 per cent LTV. 

David Black, banking specialist at Defaqto, said: "First time buyers are particularly hard hit as they need a substantial deposit merely to get on the housing ladder and a significantly larger deposit to access the best rates."

© Fair Investment Company Ltd