House prices slow but fixed rate mortgages get pricier – what does it mean for first time buyers?
HOUSE prices are rising at the slowest annual pace for more than six years, according to the Halifax.
While a slowing housing market may make it easier for some first time buyers to get onto the housing ladder, mortgage deals for those with small deposits are getting more expensive.
Halifax said that prices rose 1.1 per cent in the year to the end of September, the slowest rate since April 2013.
The cost of the average home in September was £232,574, down by 0.4 per cent compared with August, it said.
Meanwhile, Moneyfacts has found that fixed rates at homeloans with a 95 per cent loan to value – those requiring a 5 per cent deposit – are rising faster than at any other category at the moment.
Since last month, the average two-year fixed rate with a deposit of this size has increased from 3.23 per cent to 3.28 per cent, it found.
However, the average two-year fixed deal requiring a 10 per cent deposit has increased by only 0.01 per cent to 2.65 per cent.
The difference between the two rates stands at 0.63 per cent which Moneyfacts calls “significant”.
In contrast, the average two-year fixed rate with a deposit of 40 per cent or more – has decreased from 1.84 per cent to 1.80 per cent in one month.
Darren Cook, finance expert at Moneyfacts, said: “It appears that mortgage providers may be factoring in a larger proportion of default risk into rates at higher LTVs, where, among other things, competition and lower wholesale funding costs seem to be benefiting borrowers who have a greater equity stake in their property and are sharing much more of the risk with the lender at lower LTV bands.”
So what should first time buyers do?
IN terms of house prices, more of the same lies ahead.
Halifax said: “We expect activity levels and price growth to remain subdued while the current period of economic uncertainty persists.”
And the lender says that for most buyers, important affordability measures – such as wage growth and interest rates – still look in their favour.
But trends are changing on the mortgage front.
Mortgage rates currently favour first-time buyers who can muster a larger deposit.
And Moneyfacts says that gap between fixed rates deals requiring a five or ten per cent deposit is widening.
That means that you have a small deposit, the time to get a mortgage could be now. Trying to raise a bigger deposit is also an option.
Darren Cook at Moneyfacts adds that while mortgage rates may be creeping up for those with small deposits, “the affordability of these products may be helped” by the fact that of the 107 two-year fixed rate products at with a five per cent deposit available to first-time buyers, 98 of them are available up to a maximum mortgage term of either 35 or even 40 years.
This enables borrowers to lower their monthly repayments by spreading the cost, which as a result makes them more affordable.
In short, don’t forget to shop around for the best deals – and to look at the length of the homeloan as a way of managing repayments. This can be changed on remortgaging. You may want to seek financial advice before taking out a homeloan.
In other business news:
ONLINE LOSES SHINE: Online sales of goods aside from food had their worst ever month in September as Brits keep a close watch on spending. This holds out the prospect of many bargains later in the year – as well as more failures in the retail sector. According to the British Retail Consortium (BRC)-KPMG retail sales monitor, online non-food sales grew by just 0.7 per cent year-on-year.
BETTER BROADBAND: Vodafone is set to shake up broadband coverage and prices with its new network technology. Called OpenRAN (Open Radio Access Networks), it standardises the design of the infrastructure, masts and antennae which make up the network carrying mobile calls and data. This lowers costs and will help connect more of the world’s most rural communities to the internet.
GROUNDED: The world’s super-rich could soon be forced to slum it on commercial planes due to a UK shortage of pilots for private jets, according to aircraft seller Colibri Aircraft. Between now and 2038 the UK will need to find around 2,500 pilots for private jets or billionaire tycoons may find themselves grounded or made to traipse to check-in desks at traditional airports.
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