First-time buyers who scrape together a 10% deposit are in a better financial situation now than if they had bought in autumn 2007, according to analysis from Moneynet.co.uk.
The website agrees lenders’ demands for a large deposit are making it hard for first-time buyers to access the housing market.
But it calculates that due to corrections in house prices and the raising of the Stamp Duty threshold for first-time buyers to £250,000, first-time buyers are now paying less on their mortgage payments than they would have at the peak of the market in 2007.
Based on Nationwide’s house price calculator, Moneynet works out that a property worth £130,000 in Q3 2007 has now fallen 11.5% to £115,000 in Q1 2010.
A first-time buyer in 2007 would have needed a 5% deposit of £6,500 and had to pay Stamp Duty costs of £1,300. This would given access to a three-year fixed rate deal with Britannia Building Society at 6.19% with a £399 fee. But although a first-time buyer in 2010 would require a higher 10% deposit of £11,500, there would be no Stamp Duty to pay.
The equivalent three-year fixed rate deal has dropped to 6.03% from Nationwide with a £995 fee. This gives a monthly repayment of £675.18 for the 2010 first-time buyer compared to £812.73 for 2007’s first-time buyer.
A spokesman for Moneynet says: “The lower repayments mean that borrowers would recoup the extra £3,700 upfront deposit costs in just 27 months and the total cost of mortgage payments over the term of a three-year fixed rate mortgage work out to be £4,950 lower.
“Raising a 10% deposit may still be too much to ask for some would-be home owners, but if they can make the effort to save the sum required their efforts will be rewarded with lower monthly mortgage costs for the next three years at least.”
But the difference between rates at 75% LTV and 90% LTV still remain stark. Data from Defaqto shows that the average two-year fixed rate deal at a maximum 90% LTV is 1.90% higher than a deal at 75% LTV, while the average two-year tracker is 2.16% higher at 90% LTV compared to 75% LTV.
Source: Mortgage Strategy
Source: Mortgage Strategy
