First time buyers (FTBs) have yet to benefit from the fall in mortgage rates, with lenders charging up to 2% more for deals aimed at this group.
The dramatic cut in the base rate and a sharp fall in swap rates (which are key to fixed rate mortgages) has seen some lenders offering dramatically reduced rates. The best tracker mortgage rate is currently 3.99%, while the top fixed rate is 4.49%.
Unfortunately, FTBs are excluded from these deals - many lenders no longer offer tracker mortgages to anyone with less than a 25% deposit, while the best fixed rate deals are reserved for those who own up to 40% of the equity in their home.
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Premium for risk is astronomical
FTBs are seen as a higher risk to lenders, and have always been offered slightly less competitive rates as a result.
However, the margin between the top mortgages and FTB deals has widened considerably in these risk-averse times. As an illustration, the best two year fixed rate deal for FTBs is currently around 6.5%, or 2% higher than the market leading offer.
Below is a table highlighting the difference in rates at some of the most popular mortgage lenders. As you can see, FTBs simply aren’t benefiting from the recent fall in mortgage lending costs.
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| Mortgage type | Loan to value (LTV) | Fee | Rate |
| Cheltenham & Gloucester | 2yr fix | 90% | £995 | 6.69% |
| Cheltenham & Gloucester | 2yr fix | 60% | £995 | 4.99% |
| HSBC | 2yr fix | 90% | £999 | 6.99% |
| HSBC | 2yr fix | 60% | £499 | 5.19% |
| Abbey | 3yr fix | 85% | £995 | 6.44% |
| Abbey | 3yr fix | 60% | £499 | 5.49% |
No help until house prices level off
Not only are FTB mortgages expensive, but they are also hard to come by.
Recent research found that the number of mortgages available to borrowers with a 10% deposit has fallen from 1,197 in February to just 66 today. Deals for borrowers with a 5% deposit have all but disappeared from the market.
FTBs are unlikely to see an increase in the number of high loan to value deals until house prices level off. Worryingly, Nationwide warned recently that this may only happen in 2010.
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