The best first-time buyer mortgages

The first-time buyer market is booming. But is now the time to get onto the property ladder?

The number of first-time buyers on the market rose annually by 45% in July, with a total of 26,100 transactions in the month.

This is a rise of 8,100 from a year ago and the highest number of sales since November 2007, according to LSL Property Services.

But house prices for first-time buyers have also risen by 8% in the same time to £146,726. The average deposit required to buy your first house is now equal to 83.1% of an annual income, a 5% annual rise.

So if you're hoping to buy, there are still plenty of decisions to make. Do you go for a fixed rate mortgage and if so then for how long? Or is it better to build up a bigger deposit in order to buy a mortgage with a lower interest rate?

The first-time buyer market

The main reason for the boost in sales to first-time buyers is the fall in mortgage rates which has taken place over the past year, thanks largely to the Government’s Funding for Lending Scheme (FLS).

This has given lenders access to cheap funding, which they have passed onto mortgage borrowers. As a result the average mortgage interest rate has fallen from 4.92% to 3.99% in the past 12 months.

The number of mortgages available for borrowers with smaller deposits has also grown, giving first-time buyers additional options.

But what are the rates actually like when it comes to fixed rate mortgages?

Two-year fixed rate mortgages

Last month HSBC launched a price promise for first-time buyers to match or beat 81% of high street rivals for a limited time.

To coincide with its price pledge, it launched a two-year fixed rate mortgage at 3.59% with a fee of £1,499 (or £999 if you’re already an HSBC customer) and a loan-to-value (LTV) rate of 90%.

But not everyone will be accepted for a mortgage from the high street bank and there are several other options available.

For those buyers who don’t want to pay out a huge fee, Skipton offers a mortgage set at 3.99% (higher than the HSBC deal) but with no upfront fees.

Buyers could also go for the mortgage from Hanley Economic Building Society which has a small fee of £300 but a higher interest rate of 4.09%.

You can make use of our mortgage tool to compare the market yourself, but here I’ve picked out five of the best in the two-year range.

Five-year fixed rate mortgages

The rates are higher on a longer fixed rate mortgage but this will provide the buyer with extra peace of mind as they know their mortgage repayments won’t change for a longer period.

HSBC is again at the top here with a 90% LTV mortgage which has an interest rate of 4.49%, but fees of £1,499. If you're not in a position to pay such big fees, the Post Office has a fee-free mortgage at a higher rate of 4.75%.

Here are five of the best deals in the five-year fixed rate mortgage range.

When to buy

Despite the fact rates have been falling steadily this year, those designed for first-time buyers are still quite high.

That's why David Hollingworth, spokesperson for broker London and Country Mortgages, suggests it's a better idea to focus on building up a bigger deposit. even an extra 5% can make a real difference to the mortgages you can get your hands on.

Looking forward

Schemes like Help to Buy (HTB) have also provided a boost to this market and Andrew Montlake, spokesperson for broker Coreco, says the current housing situation could change dramatically when the second part of this scheme kicks in next year.

It’s designed to give lenders the confidence to lend at higher LTV rates so it should be a real benefit to first-time buyers.

But, the picture is not clear cut. Prices are rising steadily and there is the possibility that first-time buyers will be priced out of the housing market. Add to this the fact there simply aren't enough houses in the UK.

The Bank of England will also raise interest rates at some point. Montlake says if the economy keeps improving there will be more pressure to put rates up which will in turn lead to lenders increasing their prices.

Therefore buyers who are able to lock into a low rate now will be able to ensure their payments remain at this level for some time.

But before making this kind of decision it’s worth weighing up all the options. It still might be cheaper for some to wait and increase their deposit size rather than being pressured into buying a mortgage with a high rate which will end up costing more in the long term.

See the latest mortgage rates and get expert advice

This article aims to give information, not advice. Always do your own research and/or seek out  advice from a regulated broker (such as one of our brokers here at Lovemoney), before acting on anything contained in this article.

Your home or property may be repossessed if you do not keep up repayments on your mortgage.

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