Average interest payments for a first-time buyer mortgage over two years fell from £11,327 in Q1 2015 to £10,019 in Q1 2016 – a saving of £1,308 – according to research from AmTrust International, Mortgage and Special Risks.
The savings of more than £1,300 in interest payments over two years when compared to Q1 2015 will come as welcome news for a group who have been caught by rising house prices and expensive rents.
As the interest costs of paying off a mortgage have fallen, this means the amount spent by high LTV borrowers – those with a 5% deposit – on capital repayments has increased.
The amount first-time buyers spend on capital repayments that help them build the equity in their home has risen 18% year-on-year from £5,407 in Q1 2015 to £6,391 in Q1 2016.
This means first-time buyers can pay off the capital of their mortgage faster, reducing the total amount of interest paid over the lifetime of their mortgage.
Simon Crone, commercial director, AmTrust International, Mortgage and Special Risks, said: “There is a large and rapidly growing gulf in the cost of housing that favours first time buyers over renters – providing they can get a foot on the ladder.
“Record low interest rates mean that those lucky enough to buy their own property are benefitting from lower payments, while rental costs continue to rise, penalising those unable to save enough for a deposit. Such is the gap that homebuyers with 95% loans are able to make savings of more than £4,400 a year and reap the added benefit of paying off the capital of their mortgage.
“However, many first time buyers are unable to save deposit sums – largely as a result of high rental costs – and are therefore reliant on being able to access high LTV mortgages. It is therefore vital that we have a strong, sustainable supply of high loan to value lending to support those with smaller deposits who want to buy a home.
“Government intervention in the form of the Help to Buy mortgage guarantee scheme fired the starting gun on the return of high LTV lending after it collapsed during the financial crisis.
“The competition between lenders we have seen since the scheme was introduced has pushed down rates on 95% LTV mortgages, helping to improve access to homeownership for first time buyers. However, the Help to Buy scheme will close at the end of the year and it is concerning to see signs that high LTV lending is on the wane.
“Following the vote to leave the EU, high LTV lending faces an added threat. Lenders are likely to become more risk averse as a result and could drastically cut back on their high LTV mortgage offering.
“This would have harsh implications for hopeful first time buyers who are likely to also face greater job insecurity, at least in the short term. Wider use of mortgage insurance supported by the private sector could therefore help to maintain high LTV lending and support home ownership in an otherwise volatile climate, while still promoting stringent standards and reducing the risk to the lender.”