Mortgage deal boost for first-time buyers

BEING a first-time buyer in the last 12 months has not been an easy thing.

Just before lockdown there were 400 five-per-cent deposit mortgage deals and first-time buyers were able to shop around.

When the first lockdown hit, those mortgages disappeared, meaning that as many would-be first-time buyers were about to buy their first home, the rug was pulled from under their feet.

Today, you can count on two hands the number of mortgage deals which allow a five-per-cent deposit. Even worse, the number of hoops one has to jump through to get one is very high (plus you have to pay for the privilege, with mortgage rates of at least 4.15 per cent).

In putting down a five-per-cent deposit, you borrow the remaining 95 per cent as a mortgage, which was very popular with first-time buyers before the Credit Crunch.

Yet in the Budget, Rishi Sunak vowed to back the building societies and banks so they can offer more of these 95 per cent loan-to-value mortgage deals.

Many people have said this will mean there will be a house price boom – especially as Stamp Duty is extended until September

This scheme is nothing new as a practically identical scheme was launched by George Osborne in 2013 with his Help to Buy Scheme.

Nearly one in five houses sold in the year after that budget used this scheme, yet Osborne’s was only for first-time buyers and only for brand new homes.

The big difference with this new scheme is that it’s available for second-hand homes as well and is open to all owner occupiers moving home.

Yet, what will the banks mortgage interest rate charge be? So far, no building societies or banks have publicised what rates they will charge.

Under the Government’s mortgage guarantee to the banks, Westminster will guarantee 20 per cent of any mortgage offered at 95 per cent loan to value. In principle, that means building societies/banks should be able to offer the low mortgage rates as those available to people wanting to borrow 75 per cent loan to value.

However, don’t forget though that the banks will be charged a ‘still to be decided’ amount to use the Government guarantee.

On the last Help to Buy Scheme, it was rumoured they were charged 0.9 per cent of the mortgage borrowed, so this cost would have to be passed on to the buyer. I would suspect the eventual rates first-time buyers will have to pay will be around three-per-cent.

This new deposit scheme is only going to work if the banks and building societies have sensible mortgage rates as it needs to help those first-time buyers.

I have to applaud Rishi Sunak for this initiative, yet will it be ‘fields of clover forever’ for the property market with the new scheme?

It will be a good boost to the property market.

While the mortgage guarantee offers a small portion of security for the lenders, it does focus on the riskiest part of the housing market. Many lenders still have cold shivers of the Northern Rock 125-per-cent mortgage debacle from a decade ago.

The fact is these types of mortgages will be a higher risk, even if the Government are underwriting them with their smaller deposits, which will come through in banks’ and building societies’ higher pricing for these mortgages. n If you are a homeowner, potential first-time buyer or anyone involved in the property market and you would like to chat about anything I’ve covered in this article, please don’t hesitate to drop me a line.