Four Fab Mortgage Deals For First-Time Buyers

What are the best deals out there for first-time buyers? Laura Starkey investigates.

This article was first sent to Fools as part of our Summer Lolly email campaign.

Thanks to reports that the housing crisis is set to continue until 2011, anyone looking to buy their first home might be feeling pretty despondent right now.

But despite the doom and gloom, there are some good deals currently available for Foolish first-time buyers -- so you could be closer to getting a foot on the property ladder than you think...

The Foolish first-time buyer

According to The Motley Fool Mortgage Service, the average single first-time buyer who used The Motley Fool this summer had a higher-than-average income of £30,012 a year. Meanwhile, the typical incomes of first-time buyers making a joint purchase though our service were £28,610 and £20,264 respectively.

We also find that the typical Foolish first-time buyer is looking to purchase a property worth £174,064, and needs a home loan of £141,747.

This means that they have deposits of around 19% to put down on their property -- more than the 10% minimum now required by most lenders.

How do you measure up against this average? You may be struggling right now to put together even a 10% deposit, never mind 19%. Can you still get a decent deal? And if you are lucky enough to be the typical Foolish first-time buyer, what are the best mortgages out there for you?

The Motley Fool's mortgage picks

Using the information above, Tim Wilson -- our head broker at The Motley Fool Mortgage Service -- highlighted four deals that would suit first-time buyers with 10% to 15% deposits.

*Monthly payments include arrangement fees valuation fees and transfer fees, added into the total sum borrowed. Calculations are based on a first-time buyer borrowing £141,500 on a repayment mortgage, to purchase a property worth £175,000.

All of the deals in this table are fixed rate deals, so you will have the security of knowing exactly what your monthly payments will be each month.

Tim and I agreed that, overall, Nationwide's two year fixed rate deal was the best of the four deals in the table. While the monthly payment is slightly higher than the deal offered by West Bromwich Building Society, costing an extra £402.96 over the two-year term of the deal, this deal has one big advantage over its rivals: it is flexible.

Does this mean it can perform acrobatics? Sadly not, but it does give you a safety net. A flexible mortgage means you can make overpayments without being charged a penalty: Nationwide allows up to £500 per month on this deal. So if you have a windfall or bonus, you can put it towards your mortgage debt, shaving months or even years off your mortgage term and potentially saving you thousands of pounds in interest payments.

However, the best is yet to come: if you do overpay and then find you actually want that extra payment back, you can underpay the next month or even take a repayment holiday (both of which must be equivalent to the amount you've already overpaid). You can also `borrow back' overpayments if you need to.

Mind you, if you do take advantage of this facility, you will lose the savings you would have made in terms of reducing the interest and the mortgage term, to take this into account.

The deal from Accord Mortgages might also seem attractive as you only need a 10% deposit and it carries no arrangement fee, so the total fees payable on this mortgage are a very low £410. However, the higher interest rate on this deal means you will pay more each month than you would on a similar deal from the Royal Bank of Scotland -- demonstrating how important it is to take into account both the rate and the fee when comparing mortgages. (Please note if you are still interested in this deal, you can only access it through a broker - you can't go direct to the lender.)

For borrowers with a deposit of 15% or more, West Bromwich Building Society's two year fixed deal could be a good bet. Despite its hefty fees (the biggest of all four deals listed here), the interest rate charged on this mortgage is the lowest. So it works out the cheapest overall.

What if I don't have 10%?

If you're not in a similar position to our typical first-time buyer, your options are unfortunately limited.

Most lenders now demand that first-time buyers have a deposit of at least 10% to get a mortgage -- and institutions that will lend more mostly do so at very inflated interest rates.

So it is still possible to get a deal - but it won't come cheap. One of the best around at the moment is a 6.93% three-year fixed rate from Nationwide, available to borrowers with a 5% deposit.

This mortgage comes with no Higher Lending Charge, and a fee of £299. It is only available direct from Nationwide.

Should I go to a broker?

Navigating the mortgage maze is not easy. Here at The Fool, we try to provide you with the tools to research the best deal yourself.  You can read our mortgage guide, ask your fellow Fools for advice on our mortgages discussion board or check out our mortgage best buys table.

However, we also acknowledge that, when it comes to the biggest financial decision of your life, you may want to have a frank conversation with an expert. Brokers at the award-winning Motley Fool Mortgage Service will always recommend the best deal to suit your needs - even if it's not available through the service - and as they're fee-free, it won't cost you anything to get their advice.

Happy mortgage hunting!

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