The mortgage to kickstart the housing market

One lender has unveiled an impressive new deal for those looking to get onto the housing ladder.

For a while now, it’s been very tough for first-time buyers or those with only a small deposit to get a look in when it comes to the housing market.

Mortgage lenders have been content to compete over the higher end of the market, the borrowers with large equity stakes, and ignore those at the bottom of the chain.

However, this may now be shifting, in part thanks to a revolutionary new mortgage.

A boost for FTBs

Halifax has launched a new mortgage which is sure to appeal to those just starting out on the housing ladder.

The deal is a two-year fixed rate at 5.79%, for borrowers with a deposit of only 10%. However, what really sets this mortgage apart is the fees – or rather, the lack of them.

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There are no product fees, no conveyancing fees, no mortgage application fees. Indeed, the lender will even refund the valuation fee. According to Halifax, the average first-time buyer typically faces fees of just shy of £2,000 when buying a property. That’s £2,000 in the buyer’s pocket, instead of going to the lender with this mortgage, something that I know would have appealed to me when I bought back in February 2009.

How the rate compares

So, obviously the lack of fees will be a big boost to potential buyers, but the rate will still be the deciding factor for many borrowers. So how does it compare to the other lenders (and there are only a few) who will lend to buyers with a deposit of just 10%?

Lender	Term	Rate	Maximum loan-to-value	Fee
HSBC	Two-year fixed rate	4.99%	90%	£99
Co-operative Bank	Two-year fixed rate	5.09%	90%	£999
Newcastle BS	Two-year fixed rate	5.15%	90%	£894
Yorkshire BS	Two-year fixed rate	5.19%	90%	£995
Britannia	Two-year fixed rate	5.69%	90%	£0

So as you can see, while the Halifax deal is very impressive, there are at least five comparable mortgages out there at the moment for borrowers with small deposits which offer a better rate of interest. You’ll need to work out for yourself whether you’d rather have the cash in your pocket at the outset, but pay a little more on the mortgage every month, or whether it’s most important to you to keep the monthly repayments to a minimum.

It’s also worth remembering that I’ve only looked at two-year fixed rate deals so far, whereas you may prefer to take advantage of the current record low base rate by snapping up a longer term fixed-rate deal. That’s what I did when I bought, settling on a five-year fixed rate. Obviously, a five-year fixed rate will cost you more than a two-year deal when it comes to the rate, as you have to pay more for that stability, though the difference is not as marked as you may expect.

Here are the top five five-year fixed rate deals available to borrowers with a deposit of 10%.

Lender	Term	Rate	Maximum loan-to-value	Fee
Skipton BS	Five-year fixed rate	5.78%	90%	£995
Cheltenham & Gloucester	Five-year fixed rate	5.79%	90%	£895
Nottingham BS	Five-year fixed rate	5.79%	90%	£295
Co-operative Bank	Five-year fixed rate	5.89%	90%	£999
Post Office	Five-year fixed rate	5.99%	90%	£995

A cause for optimism

Not that long ago, where Halifax led, the rest of the mortgage market followed. And if we want a healthy housing market once again, we should all hope that other lenders take note of both Halifax’s innovation and its desire to lend to first-time buyers with smaller deposits.

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We can debate forever and a day about the future for house prices, but the fact remains that until first-time buyers and borrowers with smaller deposits are given the opportunity to access decent mortgage funding, our housing market will remain dysfunctional. The housing market is in a slump, and only by embracing first-time buyers is the whole thing going to get moving again.

A word of warning

However, there is one aspect of the Halifax mortgage that I really don’t like – it’s only available through branches.

Effectively, the lender is cutting mortgage advisers out of the loop, and when it comes to first-time buyers, particularly those borrowing at a high loan-to-value, that always leaves me uncomfortable.

Sure, some people feel confident enough with their finances, and with the small print in mortgage contracts, that they feel they can proceed without utilising some independent advice. More power to them.

However, I know that when the time came for me to buy, despite having written about mortgages for a long time, I still wanted to use a broker. That way I could work out exactly which type of mortgage most suited my own circumstances and attitude to risk, and knew that the mortgage we settled on was the best for me.

That may not be the case with the advisers within the Halifax branches (this also applies to the Britannia and Post Office mortgages highlighted in the table above, which are only available through branches).

I’d always advise first-time buyers to at least have a chat with a broker before applying for a mortgage, to ensure they understand exactly what they are signing up for. You can pick the brains of our fee-free mortgage team by email, instant messenger or telephone over at our mortgage centre.

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