First-time buyers still pay two thirds more per month in mortgage payments

Michael Lloyd

April 12, 2018

First-timers with only a 5% deposit are still having to pay almost two-thirds more per month in mortgage payments than those with a 25% deposit, the quarterly AmTrust Mortgage Loan to Value Tracker found.

This has been a constant over the three years that the Tracker has run.

Pad Bamford, business development director at AmTrust Mortgage & Credit, said: “This iteration of the LTV Tracker could well be summed up as, ‘the more things change, the more they stay the same’ because in terms of rates, monthly/annual mortgage costs, and product choice for first-time buyers, there continues to be a real and tangible gap between those lucky enough to have a larger deposit and those that do not.

“It is perhaps not surprising that we have such a strict correlation between recent Trackers because lenders, in particular, appear to like the status quo and seem to have little incentive to move beyond what they are currently doing.

“Despite almost every survey of potential first-time buyers showing that the biggest barrier to purchase is saving for the deposit, there still appears to be a major reluctance to service the higher LTV marketplace, despite a growing need and demand.”

Product choice for those first-timers with just a 5% deposit is dramatically down on those who have been able to save a larger amount, or who have the benefit of family support.

AmTrust suggested the major fluctuations in product choice each quarter are damaging the first-time buyer market as those wishing to purchase cannot guarantee they will be able to secure a mortgage. And with affordability concerns, they are less likely to look at purchasing.

The average loan required by first-time buyers has gone up again since the last quarterly tracker in January – up to £123,671 for those with a 25% deposit, and £156,650 for those with a 5% deposit.

With average rates of 1.53% for 75% LTV loans, and 3.83% for 95% loans this means high LTV first-time buyers will still pay 63.7% more than those with bigger deposits – £5,952 per year compared to £9,744.

Bamford added: “When you are having to pay almost two-thirds more than your 25% deposit counterparts and your product choice is very low, it is perhaps not surprising many people feel they have no option but to wait it out, and try to save more.

“This is clearly easier said than done given poor wage levels, the rising cost of rent, and the still small levels of housing supply.”

“The stamp duty cut for first-timers buying up to £300,000 is, one presumes, designed to incentivise those potential purchasers to get on the ladder now, but in reality, until the deposit hurdle is overcome and we can offer borrowers more high LTV options, the measure is only really going to help those who were going to purchase anyway.

“We believe that lenders who utilise private mortgage insurance have the perfect tool to offer such products, mitigate their risk, and provide competitive options for first-timers. Many building societies are already doing this but the market could be boosted considerably by more mainstream banks choosing this option.”

AmTrust believed that an anticipated increase in Bank Base Rate by the Bank of England’s Monetary Policy Committee next month, may not immediately feed into lender’s rates as there is relatively strong competition for first-time buyer business, especially at lower LTV levels.

The government’s focus on supporting the first-time buyer market has continued and demand appears to be growing, meaning that a greater number of lenders are looking at the sector.

However, latest house price index data suggested that average UK house prices are on the move upwards again meaning first-time buyers will need both bigger deposits and larger loans in order to purchase.

AmTrust believe lenders continue to aim the bulk of their first-time buyer product range at those with larger deposits. It thought that this trend is unlikely to change unless there is a major reappraisal of product needs, and a real appetite to write more high LTV business.

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