The best mortgage deals for first-time buyers

There's a lot of positive news out there for first-time buyers, but mortgages for borrowers with small deposits are still thin on the ground.

A raft of positive housing market statistics have been released in the last couple of weeks and have been very welcome indeed.

Whether you think we are starting to see the first green shoots of recovery, or if you believe we are simply experiencing a temporary uplift before things turn bad again, it's an improvement nonetheless.

And first-time buyers in particular seem to be shaking off the recessionary shackles and embarking on buying homes in significantly greater numbers, albeit still a fraction of the pre-crunch figures.

But are the mortgage lenders doing their bit to help first-time buyers and launching more high loan-to-value products for those with small deposits? Or is it the case that they still favour low-risk remortgagors, and don't want, or need, to pander to the rest of us?

Proof positive?

First, the good news.

Most housing market indices and statistics are looking pretty positive at the moment. Just this week The Royal Institution of Chartered Surveyors (RICS) said that more of its members reported house price rises than falls for the first time in two years, with members in the south of England feeling particularly bullish.

Plus the Department of Communities and Local Government said that average prices in July were 1.4% higher than in June (though still down 8.3% year on year). The quarterly figures also showed a rise of 2.1%.

Halifax's latest house price index adds fuel to the rising property price fire, showing prices have increased by 0.8% in August - the fourth rise in the first eight months of 2009. It also said that prices have been pretty much unchanged over 2009 as a whole.

Finally it's not just prices on the up: the number of house purchases is also rising. Bank of England figures show that the number of mortgages approved to finance house purchase - a leading indicator of completed house sales - increased for the sixth month on the trot in July. Approvals were 53% higher than in July 2008, at 50,123.

However gloomy you feel about the housing market and its prospects, these figures must offer some comfort. Of course, it's been argued that the lack of housing on the market has been keeping prices high (maybe artificially high), but even RICS' latest report showed an increase in housing stock.

The return of the first-time buyer!

The general feeling of cheer is even more pronounced in the first-time buyer (FTB) sector with latest figures looking more positive than they have done for some time.

More mortgages being lent to FTBs: The Financial Services Authority released figures this week that noted a significant rise in new mortgages to first-time buyers from about £3bn in Q1 2009 to £5bn in Q2 2009.

FTB numbers rising fast year-on-year: Plus recent Council of Mortgage Lenders figures showed that there were 20,400 first-time buyer loans in July, up 18% on June. And, compared with a year earlier, the rise in first-time buyer numbers was up 22%.

Mortgages costing FTBs less: Nationally, typical mortgage payments for a new borrower have fallen from a peak of 48% of average disposable earnings in 2007 Quarter 3 to 29% in August 2009. Notably, mortgage payments relative to earnings are now below the long-term average of 35% recorded over the past 25 years.

Estate agents seeing more FTBs: The National Association of Estate Agents has also noted an increase in first-time buyers in its August Housing Trends report. It says that the percentage of first-time buyers increased from 22% of all buyers in July to 36% in August.

It also noted that comparison with 12 months ago shows the extent of the resurgence of first-time buyers - percentage wise four times as many sales were made to FTBs this August than in August 2008.

Top deals for FTBs?

Unfortunately the rise in demand and transactions from first-time buyers is not being matched by many more high loan-to-value mortgages being made available.

The average first-time buyer loan-to-value ratio is now 75% according to the Council of Mortgage Lenders, down from 86% a year ago. This shows that those who do step onto the ladder have needed to find a lot more money upfront to do so - 25% of the property's value. The average first-time buyer income multiple has also dropped from 3.27 to 3.02 times their income.

And according to lovemoney.com partner Moneyfacts, although the number of residential mortgages available is slowly increasing, the market is still dominated by deals for customers with more than a 25% deposit.

But the number of 90% LTV deals is increasing, slowly. Moneyfacts says that number bottomed out in May this year at 71 but there are now 106 90% mortgages on the market. That said this figures is well below the 492 which were available last September.

It also makes the point that these high LTV deals are much more expensive than mortgages for those with a large amount of equity. The best deal on offer for a borrower with just a 10% deposit is currently 2% higher than that available to those with a 40% deposit, adding £170 per month to the cost of a £150,000 mortgage.

But if you look hard enough, there are a few decent 90% mortgages around - and here are some of my favourites. The first table lists mortgages up to 90% LTV and the second has products for those who have more than 10% upfront but less than the 25% needed to get a really competitive mortgage deal.

Up to 90% loan-to-value (LTV)

Up to 85% loan-to-value (LTV)

*Available to professionals only

Compare mortgages with lovemoney.com

More: Tip top deals for all borrowers | Why discount mortgages are better than trackers