The end of the Stamp Duty holiday may not be the disaster it seems - smaller deposit mortgage deals are getting cheaper!
First-time buyers could be forgiven for thinking that the dream of home ownership is beyond them.
January saw the Stamp Duty threshold fall from £175,000 back to £125,000 - yet figures from mortgage giant Nationwide show that the price of the average starter home is still above £135,000. That means virtually all new buyers will have to pay 1% tax this year.
What’s more, new buyers bore the brunt of the mortgage drought we all suffered last year.
Figures from analysts Moneyfacts show that the average two-year fixed rate for borrowers with a 10% deposit crept up over the year to hit 6.48% - its highest level since December 2008. And that’s at a time when the interest rates sank to an all-time low of 0.5%.
High rates still didn’t stop millions of buyers rushing to get a first foot on the property ladder before the end of the “stamp duty holiday”. Figures from the Council of Mortgage Lenders show that lending for starter homes surged to a two-year high in December as buyers rushed to beat the tax deadline, with 25,000 loans issued in total.
Yet the window of opportunity may not have closed.
Mortgage rates for borrowers with smaller deposits are starting to fall, as lenders cut prices to win new business. And you could save more than the average £1,350 Stamp D uty bill with the right deal...
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The best 90% mortgage deals
It’s worth remembering that the best mortgage deals are generally available for borrowers with a deposit of 20% or more - but if your circumstances mean it’s time to buy, the good news is that rates on deals with a 90% loan-to-value threshold have fallen since the turn of the year.
The leading deal currently available comes from the Furness Building Society - the three year deal is priced at a discount variable rate of 4.94% for three years. Bear in mind that this rate will rise and fall in line with the lender’s Standard Variable Rate (SVR) - so if you want the peace of mind of regular monthly repayments offered by a fixed-rate deal, this may not be the one for you.
If you do want a fixed rate deal, the best one at 90% LTV comes from the Saffron Building Society. It’s a fixed rate of 5.89% until November 2012, before switching to the society’s SVR - which is currently 5.39%. Be aware too that it comes with a £995 arrangement fee and a sliding valuation fee.
An alternative option is open to Santander customers - to reward its existing current account holders, the Spanish giant is offering a 90% LTV three-year fix at 5.99%. Expect to pay just over £1,000 in total fees for this deal.
Newcastle Building Society also has two eye-catching mortgages for borrowers with a 10% deposit. The first is a two-year fixed-rate deal priced at 5.95% with a low arrangement fee of £694. The other is a two-year tracker deal at 4.60% - or 4.10% above the Bank of England base rate. This also comes with the £694 fee.
HSBC has a worthwhile pair of offers too - a two-year fix at 5.99% and a £599 booking fee, and a lifetime tracker at 4.99% (4.49% above base rate).
Be aware that these rates will only be available to those borrowers with healthy credit ratings - and that you can check the status of your credit report with a free trial from reference agency Experian. And for help with your particular mortgage needs, try our mortgage search service.
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What you can save with a bigger deposit
If you can scrape together a deposit worth 15% or 20% of your property’s value, the deals on offer improve significantly.
One particularly worthwhile - and innovative - new deal is on offer from the Leek United Building Society. The deal is open to first-time buyers with a 15% deposit and requires a mortgage indemnity guarantee paid upfront and designed to protect the building society from the risk of house price falls.
In exchange for signing the guarantee, borrowers benefit from a two-year fixed rate of just 4.79% - a clear 0.5 percentage points below any other comparable deal on the market. The deal also comes with £250 cash back - but be aware that the upfront cost of the indemnity guarantee could vary significantly according to your personal circumstances. It’s best to get independent advice to see if this deal is for you.
Elsewhere, Santander has this month launched an 85% LTV four-year fix priced at 4.99% - but, again, you need to be an existing current account customer to benefit. The Leeds Building Society also offers a two-year fixed rate mortgage for buyers with a 15% deposit - this comes with a rate of 5.69% and a remarkably low booking fee of just £199.
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Make Your Move
Whether you choose to buy now depends on your personal circumstances and whether you think your property’s value will rise or fall over the coming years. Bear in mind that the current best buy for a fix requiring a 20% deposit is significantly lower at 3.6%.
Whatever your mortgage needs, try our mortgage search service. To help save that deposit, you can adopt our goal Build up Your Savings. Or Watch this video: The estate agent debate.
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