Standfirst] Jeremy Gates reports on the nation’s money issues and looks at how building societies are catching first-time buyers with new loans*******
Is the big chill which has frozen first-time buyers out of the housing market finally beginning to thaw?
And will it soon be possible to buy a first home without a massive £20,000 deposit or a handout from the “bank of mum and dad”?
The answer to both questions is a hopeful ‘yes’ following the move by Nationwide, Britain’s biggest building society, to cut its 90 per cent loan-to-value (LTV) fixed rates by between 0.5 per cent and 0.7 per cent.
The largest reductions, to Nationwide’s two- and three-year 90 per cent LTV mortgages, are bound to help buyers with smaller deposits: two-year fixed rates fall 0.7 per cent to start at 4.49 per cent (4.39 per cent for existing customers); three-year fixed rates fall 0.6 per cent to start at 4.69 per cent (4.59%); and five-year fixes fall by 0.5 per cent, with rates starting from 4.99 per cent (4.89% for existing customers).
Nationwide is trimming other fixes and tracker rates by up to 0.4 per cent.
Tracie Pearce, Nationwide’s head of mortgages, says: “We have cut our rates a number of times over the last few weeks and not just for those with a large deposit.
“This time, we will continue to make reductions across the board, but our largest cuts on loans with an LTV of 90 per cent.
“It’s a tangible demonstration of how we are utilising the Funding for Lending scheme to reduce rates, and we hope it gives first-time buyers and other borrowers the boost they need to get the mortgage and home that they are looking for.”
Despite the Nationwide’s move, however, lenders have faced fierce criticism after figures showed many of them were being tardy in taking up £80 billion of cheap funding made available in the Government’s latest attempt to kickstart the economy.
The Bank of England figures showed that only six of the 35 lenders who signed up to the Funding for Lending scheme accessed any cheap funding in its first quarter.
Four banks - Barclays, Lloyds, Bank of Scotland and Santander - took a total of £3.75 billion, while two building societies, Nationwide and Leeds, took a total of £610 million.
However, leading brokers detect a clear thaw in the air and they reckon that first-time buyers could get even better deals early in 2013.
Ray Boulger, senior technical manager at mortgage broker John Charcol, says: “We are certainly seeing more competition on rates at the high LTV end of the mortgage market.
“It may be that lenders who have been targeting cheapest rates at buyers able to accept LTV limits around 60% are facing a saturated market at that level. So they may need to find another sector to keep business rolling in.”
Andrew Hagger, an independent personal finance analyst at Moneycomms.co.uk, says: “The mortgage situation is now probably the best it has been for first-time buyers in three or four years, as lenders recognise they must help lenders with smaller deposits.
“For most mortgage deals, however, buyers will still require a minimum 10 per cent deposit.
“If you have to go to 95 per cent, a deal from Newcastle Building Society - a five-year fix at 5.99 per cent plus £690 in fees - shows how steeply the price of money can rise for buyers who need that extra help.”
Nationwide claims that it was championing the needs of first-time buyers long before Funding for Lending took its bow.
Its lending in the first six months of the financial year to September 2012 provided £2.5 billion to 20,000 first-time buyers, doubling the amount loaned in the same period last year and almost matching the amount loaned to 24,000 first-time buyers in the whole of the previous financial year (2011/12).
But Hagger thinks rates from The Co-operative Bank are “still head and shoulders above the competition”.
He says: “The move came out of the blue and probably caught rivals on the hop.”
For borrowers with a 10 per cent deposit, The Co-operative Bank has a two-year fix at 3.99 per cent, with no fee. For borrowers able to accept an 85% LTV, the three-year fix costs 3.79 per cent, with £999 fee.
On two-year fixes for first-time buyers who need a 90 per cent LTV, Hagger reckons the next best buy is probably from Newcastle Building Society at 5.99 per cent, with no fee.
On three-year fixes, The Co-operative Bank’s deal at 3.79 per cent compares pretty well against Nottingham Building Society (4.79% and no fee to 90% LTV) and First Direct (4.89% and no fee to 90% LTV).
Another leading building society, the Chelsea, a subsidiary of Yorkshire Building Society, has a range of options to make it easier for many first-time buyers to get their own home.
Firstly, it has produced a range of two-year fixes from 75 per cent to 90 per cent LTV: a two-year fix at 2.99 per cent, with a 75 per cent LTV limit, has a fee of £1,495, while a 3.19 per cent loan, also with a 75 per cent LTV limit, charges a lower fee of £495.
Borrowers needing a 90 per cent LTV pay 4.49 per cent, with a £1,495 fee, while the 85 per cent LTV option costs 4.24 per cent, with an £495 fee.
However, these mortgages stand apart from the pack because they include a 1 per cent cashback on the value of the mortgage. This lump sum can help buyers to meet stamp duty charges, or other costs involved in buying a home.
Chelsea Building Society also offers an offset mortgage, which uses interest earned on savings to reduce monthly repayments, and which is available at the same rate as standard loans. Offsets are usually slightly more expensive.
Sunjeev Sahota, Chelsea Building Society product manager, says: “From research among current and potential first-time buyers, a clear finding was that current first-time buyers value the offset option, which can reduce the cost of borrowing. Some three in four potential first-time buyers plan to continue saving post-purchase.
“This is something we need to encourage, so the offset option is included in our first-time buyer range at no additional cost.
“First-time buyers also say the upfront cost which worries them most is stamp duty, which is why we introduced the 1% cash back feature. It’s up to customers how they use the cash back, but with stamp duty at 1 per cent for homes between £125,000 and £250,000, this will help a lot of first-time buyers.”
Although prospects are clearly becoming brighter for first-time buyers, knowing exactly when to apply for a loan might still require a delicate piece of judgment and good timing.
Boulger says: “An improvement in mortgage availability for first-time buyers could - in the absence of any other changes - see a small rise in house prices during 2013.
“Mortgage conditions will therefore get a bit easier, but will you have to pay extra for your home?
“Overall, I would say that if you have seen a property which you like at a good price, then if you can find a good deposit, go ahead now. There is evidence that prices outside London are beginning to stabilise, and prices seem to be flatlining in areas where they were weak in recent months.”.
Boulger thinks some bigger societies, probably including Nationwide, could provide more loans with a 95% LTV limit in 2013.
Hagger thinks buyers can safely wait until the new year before they commit themselves.
“Don’t rush in,” he counsels, “the market is quite competitive, and I think this will carry on into the first quarter of 2013. Many lenders have yet to show any appetite for low-deposit lending, but the situation is improving.
“In the medium term, more lenders will keep pushing products for first-time buyers. They know they have to do it for the overall health of the market.”
MoneySupermarket.com reckons the number of mortgages available to homebuyers has increased steadily since the spring.
There were 2,365 mortgages available in May 2012, and 2,373 when Funding for Lending was launched in early August. Now the total is around 2,800, up by around 17 per cent since August.
