Mortgage lenders slash rates for loans with 5% deposits – can it help you buy a home?
MORE lenders have revealed cuts to mortgage rates and it’s good news for first-time buyers.
Barclays and TSB are the latest to reveal a big drop in the cost of borrowing, easing pain for homeowners and first-time buyers.
Mortgage rates have been steadily falling since the Bank of England (BoE) slashed interest rates from 5.25% to 5% in August.
But these had mostly been on lower loan-to-values (LTVs) and buy-to-let mortgages, so first-time buyers have been less likely to benefit.
Millions of homeowners have faced higher rates after coming off deals initially fixed when rates were low, and first-time buyers have found it harder to get on the property ladder.
But with expectation that the BoE could cut rates again nextweek, some lenders have been prompted to cut mortgage rates.
NatWest released the lowest five-year fixed mortgage in since the Mini Budget in September 2022 and now TSB and Barclays have announced cuts too.
Barclays has reduced the cost of selected fixed rates by up to 0.4 percentage points for new and existing borrowers, including buy-to-let (BTL) customers.
TSB has reduced deals for both home movers and first-time buyers across two and five-year fixed repayment mortgages.
For those looking to remortgage, five-year fixes have decreased by up to 0.3%.
Meanwhile, two-year fixes with a 95% loan to value (LTV) for first-time buyers have fallen up up to 0.2%.
The LTV ratio is the percentage that your bank or building society is lending you to buy your home
This means that the latest cut by TSB could help first-time buyers looking to get on the ladder with just a 5% deposit.
Karen Noye, mortgage expert at Quilter, said: “It is encouraging to see that lenders are beginning to lower the mortgage rates they have on offer, and it will be good news for some prospective first time buyers who have been holding out in hopes of achieving a cheaper deal.”
The exact rates you get can depend on a range of factors though, including your income, amount you borrow and your credit score among other things.
There have also been some recent signs that the choice of mortgage products is improving for first-time buyers.
Financial information website Moneyfacts told The Sun that the average rates for two and five-year fixes have come down since the start of September across LTVs.
For example, the average rate for five-year fix with a 95% LTV on the market has fallen from 5.56% at the beginning of the month, to 5.54% now.
While the average for a two-year fix with a 95% LTV has dropped from 6.03 % to 6%.
Rachel Springall, finance expert at Moneyfacts, said: “It’s important that banks and building societies continue to support first-time buyers, as they are the life blood of the mortgage market.
“Saving money on the upfront cost of a mortgage is incredibly important for first-time buyers who may have exhausted their cash on a deposit, legal fees and moving costs.
“The challenge for first-time buyers is affordability, with interest rates higher than they may have expected, and affordable housing remaining in short supply.”
Meanwhile, some lenders have been criticised for “unfairly” offering better rates to new customers over existing mortgage holders.
Nicholas Mendes, mortgage technical manager at broker John Charcol, said: “Unfortunately, this two-tier pricing system with lenders isn’t uncommon when you’re coming to the end of your mortgage deal.
“Existing lenders often offer better rates to new remortgage customers compared to product transfer rates for existing clients.
“This clearly shows that loyalty doesn’t always pay, and it’s essential to shop around for the best deal.”
How to get the best deal on your mortgage
IF you're looking for a traditional type of mortgage, getting the best rates depends entirely on what's available at any given time.
There are several ways to land the best deal.
Usually the larger the deposit you have the lower the rate you can get.
If you’re remortgaging and your loan-to-value ratio (LTV) has changed, you’ll get access to better rates than before.
Your LTV will go down if your outstanding mortgage is lower and/or your home’s value is higher.
A change to your credit score or a better salary could also help you access better rates.
And if you’re nearing the end of a fixed deal soon it’s worth looking for new deals now.
You can lock in current deals sometimes up to six months before your current deal ends.
Leaving a fixed deal early will usually come with an early exit fee, so you want to avoid this extra cost.
But depending on the cost and how much you could save by switching versus sticking, it could be worth paying to leave the deal – but compare the costs first.
To find the best deal use a mortgage comparison tool to see what’s available.
You can also go to a mortgage broker who can compare a much larger range of deals for you.
Some will charge an extra fee but there are plenty who give advice for free and get paid only on commission from the lender.
You’ll also need to factor in fees for the mortgage, though some have no fees at all.
You can add the fee – sometimes more than £1,000 – to the cost of the mortgage, but be aware that means you’ll pay interest on it and so will cost more in the long term.
You can use a mortgage calculator to see how much you could borrow.
Remember you’ll have to pass the lender’s strict eligibility criteria too, which will include affordability checks and looking at your credit file.
You may also need to provide documents such as utility bills, proof of benefits, your last three month’s payslips, passports and bank statements.