Interest rates may be at their lowest level in history, yet borrowers are still having to pay more for loans and stump up hefty deposits when buying a new home.
For months now, struggling buyers have been faced with unaffordable mortgage products at a low loan-to-value (LTV) as lenders continue to reserve their best deals for those who can raise a substantial deposit - of as much as 40%. This has hit first timers particularly hard, as although house prices have fallen, many have been stopped in their tracks by the size of the deposit required to meet lenders' LTV demands.
Signs of improvement
Nonetheless, we are beginning to see a slow trend among lenders towards offering a wider range of deals at higher LTVs - and signs that competition is returning to the market. Two or three months ago, lenders were competing in the 60% LTV market, but are now competing in the 70% LTV market more aggressively - and even a little more in the 80 and 85% LTV market.
Smaller deposits
The Woolwich, for example, recently relaunched a range of deals for people with smaller deposits, while its stable of fixed-rate mortgages start at 4.19% (to 31.7.11) for a max 70% LTV, or 5.99% (to 31.7.11) for a max 80% LTV – both with a fee of £999. All of its best rates are now available to borrowers with a 30% deposit, instead of the 40% previously required. Abbey has also increased the LTV on its fixes to 75% LTV.
Little on offer at 90% LTV
But while lenders are moving to reduce the cost of borrowing at some levels, deals available up to 90% LTV are still thin on the ground. This has led to a huge disparity between supply and demand, as although a lot of borrowers are looking for products in this range, few products fall into this category.
Further, some first time buyers are being knocked back even though they have managed to amass a 10% deposit because of the very high credit score required.
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Lloyds TSB Lend-A-Hand Deal
As well as a loosening of the lending criteria by some lenders, we are also seeing signs of more product innovation, including the launch of the new Lloyds TSB “Lend-A-Hand” mortgage aimed at helping first time buyers.
The new home loan is available at up to 95% LTV and comes at an exceptional rate of 4.39% fixed for three years.
There are a string of conditions attached to this mortgage - including the parents (or some other ‘helping hand’) being able to deposit a cash sum equivalent to 20% of the purchase price. However, parents will then earn interest on their savings - at a respectable fixed rate of 3.5 %.
Getting the market moving
New launches such as the Lloyds TSB deal are encouraging signs that lenders are beginning to come out of their shells and loosen up on their lending criteria.
This bodes well for the market, as it will bring the buyers back - a vital part of getting the market moving once again.
But in the meantime, if you're a first time buyer, you need to persevere with your efforts to put money aside before making a move, as this is still likely to mean significantly lower monthly repayments when you do take the first step.
Whether you're looking to remortgage or take out a mortgage for the first time, Confused.com compares deals from every major lender
*Mortgage figures correct as of 24/06/09.
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