The best mortgages for first-time buyers

Lenders are slowly cutting rates on mortgage deals for those with small deposits. John Fitzsimons rounds up the best deals around

2009 wasn't a great year for first-time buyers. While property prices reached their bottom (of this dip anyway), making homes more affordable, lenders were pretty hesitant about lending to anybody taking their first steps onto the property ladder.

This was even more exaggerated if the prospective buyer wasn't armed with a sizeable deposit of at least 25%. Mortgage lenders were only interested in competing at the absolute top end of the market. Anybody else was barely an afterthought.

Thankfully, however, by the end of the year the situation had begun to thaw, with mortgages for first-time buyers becoming just a little bit more competitive. That improvement is already beginning to show in the property market, with housebuilder Persimmon revealing last week that sales to first-timers have doubled since the start of 2009 to 20%.

I've put together a collection of the very best mortgages in the market if you are just starting out, and have a deposit of 20% or less.

Gambling on a tracker

Going for a variable mortgage is always a gamble, and it's not one I've ever been a big fan of, particularly if you are a first-time buyer. In my view, it is always better to start out with a fixed rate, as at least you will be sure of exactly how much you'll need to pay each month.

However, with Bank Base Rate so low these deals may look pretty attractive.

Provider	Mortgage	Interest rate	Maximum loan-to-value	Product fee	Things to bear in mind
Royal Bank of Scotland	Two-year tracker	2.89% (Bank base rate + 2.39%)	80%	£1,499	Non RBS customers must open Royalties Private / Royalties Business current account alongside mortgage. Also, no early repayment charge
Natwest	Two-year tracker	2.89% (Bank base rate + 2.39%)	80%	£999	Early repayment charge of 3% of the sum repaid within first two years
First direct	Lifetime tracker	3.49% (Bank base rate + 2.99%)	80%	£999	Early repayment administration charge of £149
Principality Building Society	Two-year discounted variable	3.99% (Principality's SVR - 1%)	85%	£999	Early repayment charge of 3% of original balance within first two years
Alliance & Leicester	Two-year tracker	3.99% (Bank base rate + 3.49%)	85%	2% of advance	2% early repayment charge applies

I've included the information on early repayment charges as if Bank Base Rate increases quickly, your payments may swiftly become unaffordable so it pays to know how much it will cost you to get out of your tracker deal.

A short-term fix

The short term fixed rate mortgage has long been a favourite with British mortgage borrowers, as it allows you to remortgage to an even better deal only a little way down the line. That's the theory anyway.

It's also one area where lenders have started to properly compete, though this has tended to again only be for the low-risk, low-loan-to-value business.

I've put together the best short-term fixed deals for deposits of 15% to 20%:

Provider	Mortgage	Interest rate	Maximum loan-to-value	Product fee	Things to bear in mind
Newcastle BS	Two-year fixed	3.65%	80%	£895	Fee is paid upon completion.
Post Office	Two-year fixed	4.99%	80%	£599
Yorkshire BS	Two-year fixed	5.59%	85%	£495

As you can see, the Newcastle deal is far and away the most competitive, and is almost 2% cheaper than the most competitive deal at 85% loan-to-value. This really demonstrates the importance of building up the biggest deposit possible - you will save yourself a fortune in the long run.

The long-term fixed rate

My favourite type of mortgage for first-time buyers at the moment is the long-term fixed rate mortgage. I know I sound like a broken record on this at times, but with Bank Base Rate so low, these deals are only likely to get more expensive, so it makes sense to lock in for a long period and take advantage.

I've included three-year deals in my table, but personally I am a passionate advocate of five-year deals.

Provider	Mortgage	Interest rate	Maximum loan-to-value	Product fee	Things to bear in mind
Darlington BS	Three-year fixed	4.34%	80%	1% of the advance, plus a £75 completion fee	Only available to borrowers in England and Wales
Newcastle BS	Three-year fixed	4.40%	80%	£895
Newcastle BS	Five-year fixed	4.89%	80%	£489
Leeds BS	Five-year fixed	5.74%	85%	£800
Yorkshire BS	Five-year fixed	5.99%	85%	£0
Royal Bank of Scotland	Five-year fixed	6.34%	90%	£0

Once again this table outlines just how important it is to build up the biggest deposit you possibly can, with the best part of 2% between the cheapest five-year fix at 80% and 90% respectively.

How to build up that deposit

It's very easy to say 'get a bigger deposit', but it's not necessarily easy in practice. Thankfully there are a number of lovemoney.com goals which can help you on the way.

You should definitely start out with the tips and hints in our goal Build up your savings, while other goals that will help with this include Cut your food bills, Manage on a small budget and Lower your household bills.

If you're looking to remortgage, you may also want to start overpaying before your current deal comes to an end or to make home improvements that will add value, and thus increase your equity stake.

It may take a while but it really is worth getting as big a deposit as you can possibly manage. Every penny really does count!

Make the most of advice!

One other thing I would always recommend to first-time buyers is to speak to a financial adviser. I've been writing about mortgages for a long time, but I still wanted to use a broker when I bought my first property last year.

In my opinion, particularly if this is your first purchase, the advice and guidance you can get from a broker is well worth it. My colleague Christina Jordan is also an advocate of independent advice, and her piece The benefits of using a mortgage broker is well worth a read if you're a first-time buyer. It's also worth checking out this comprehensive eight-step guide for first-time buyers by the man who's done it all and seen it all: lovemoney.com head broker Tim Wilson.

More: Avoid this massive mortgage mistake | Save £200 a month on your mortgage!