Getting on the property ladder these days is no mean feat. But is there a helping hand?
Less than 12 months ago, Nationwide reported that average property values were rising by a staggering £50 a day. That meant many would-be first-time buyers couldn't save fast enough to keep pace with spiralling house prices.
Today it's a different story, with most house price indices predicting a negative trend this year. So, does that mean first-time buyers up and down the country are now breathing a huge sigh of relief?
Sadly, not. House prices may be falling -- but thanks to the credit crunch -- this isn't doing anything to ease most first-time buyers' troubles. We know property is getting cheaper, but that's little comfort when you're hit with a double whammy of rising mortgage interest rates and the demand for a hefty deposit.
But NatWest has come up with a new way of giving would-be borrowers a helping hand, with the launch of the First Home Saver Account. The account is specifically designed to help you save up that vital deposit for your first home.
The Deal
Here's how it works. You'll need to open a First Home Saver Account with a minimum of £100 and then save at least £50 a month, for a minimum of six months. Once your mortgage has been arranged, you'll enjoy a bonus cashback lump sum, which for larger balances could boost your deposit by as much as £5,000.
Sounds good, doesn't it? Let's take a look at the cashback benefits in more detail:
Tier (minimum balance) | Gross/AER | Cashback | Final Year AER - Basic Rate Tax Payer | Final Year AER - Higher Rate Tax Payer |
|---|---|---|---|---|
£500 - £4,999 | 2.65% | £100 | 27.65% | 35.98% |
£5,000 - £9,999 | 2.75% | £500 | 15.25% | 19.42% |
£10,000 - £24,999 | 2.80% | £1,000 | 15.30% | 19.47% |
£25,000 - £49,999 | 2.90% | £2,500 | 15.40% | 19.57% |
£50,000+ | 3.10% | £5,000 | 15.60% | 19.77% |
Source: NatWest
As you can see, even if you manage to save just £500, you'll benefit from £100 cashback, while those who a have a balance of £50,000 would receive £5,000 cashback in return.
Remember to earn the applicable amount of cashback; you must have maintained the minimum balance for the tier for at least six months first. In other words, to earn the maximum cashback of £5,000, you must have a balance of at least £50,000 held in your account for six months.
If you combine the £5,000 cashback bonus with an interest rate of 3.10% on your balance, that's equivalent to earning almost 20% AER on your savings (for a higher-rate taxpayer). Can't be bad!
The Deal Breaker?
Whenever it looks like you're getting something for nothing, you know there's got to be a catch somewhere. With the First Home Saver account, the major drawback is the requirement to take your mortgage with NatWest too.
That's not necessarily a problem as long as NatWest have competitive mortgage deals. Here's a quick round-up of what's on offer for first-time buyers right now:
NatWest Mortgages For First-Time Buyers
Product | Interest Rate | Minimum Deposit | Product Fee | Early Repayment Charge |
|---|---|---|---|---|
2 year fixed until 30/06/2010 | 5.79% | 25% | £999 | 3% until 30/06/2010 |
2 year fixed until 30/06/2010 | 5.99% | 10% | £999 | 3% until 30/06/2010 |
5 year fixed until 30/06/2013 | 5.89% | 25% | £999 | 5% in year 1 reducing to 1% in year 5 |
5 year fixed until 30/06/2013 | 6.09% | 10% | £999 | 5% in year 1 reducing to 1% in year 5 |
5 year fixed until 30/06/2013 | 6.59% | 5% | £999 | 5% in year 1 reducing to 1% in year 5 |
2 year tracker BBR + 1.24% | 6.24% | 10% | £999 | 3% until 30/06/2010 |
NatWest mortgages seem reasonably attractive, given that the most competitive two-year fixed deal on the market today offers a rate of 5.64% -- for borrowers with 10% and 25% deposits. Meanwhile, the top five-year fixed rate for borrowers with a 5% deposit stands at 6.19% at the moment.
What's more, the product fees are fairly consistent with the wider market and the early repayment charges don't extend beyond the length of the deal either. True, NatWest may not be the market leader, but these deals should still appeal to a fair number of first-time buyers.
I would say as long as you're sure NatWest has the right mortgage deal for you, cashback on your savings is a nice idea. But there are some hitches: firstly, we know how competitive NatWest mortgages are now, but who knows whether they will measure up in six month's time? And that's how long you'll need to save -- as a minimum -- to qualify for any cashback.
Secondly, there's a risk you may not get accepted for a mortgage with NatWest when the time comes. That means, you'll miss out on the cashback, and your savings will have earned paltry rates of interest in the meantime.
Finally, to earn an amount of cashback that would really make a difference to your house purchase, you'll need a high level of savings already. That's not really much of a helping hand for cash-strapped first-time buyers who don't have a spare £50,000 knocking around.
Unless you have plenty of savings already and you really want to go for a NatWest mortgage, it's probably better to build-up your deposit using a high-interest savings account instead. Try Kaupthing Edge Savings, Alliance & Leicester eSaver or Abbey Instant Access Saver which pay top interest rates of 6.5% (variable). Alternatively, you could save up to £3,600 tax-free this year in a cash ISA.
Once you have your deposit, you'll have the freedom to go for the lender of your choice. Then all you need to do is speak to one of our brokers to help you find the best deal.
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