The government may be pulling out all the stops for first-time buyers with their Help to Buy, Equity Loan and Shared Ownership Schemes but the big High Street money lenders aren’t playing fair.
Despite Bank of England Governor Mark Carney cutting interest rates from 0.5% to a record low of 0.25% in the summer, it hasn’t made as much difference to the pockets of millions of first time homebuyers as he’d have liked. In fact it’s all a bit of a double whammy for this group of 20 to 30-somethings who are so keen to get their first steps on the property ladder – and who, in turn, are crucial to the market’s recovery.
High street lenders increased mortgage interest rates
The first offensive came from the likes of Halifax, Tesco, Nationwide and many of their lending contemporaries. They managed to throw a spanner in the government works – by quietly increasing interest rates on tracker mortgages just days after the Carney’s interest cut was applied.
The result is that some first time buyers today have to pay an additional £80 to £90 a month – which is a lot when you’re already paying a £400 every four weeks. Halifax, for instance, increased the interest rate on a two year tracker popular with first time buyers from 1.59% to 2.04%.
Tesco was just as bad by increasing their two year tracker rate from 2.55% to 2.83%, resulting in an additional £57 a month – ensuring borrowers didn’t benefit from the bank’s rate cut at all. Nationwide joined the fold by increasing quite a few of its tracker mortgage rates by 0.10%.
First time buyers have no joy with savings accounts
Meanwhile, prospective first time buyers who have opted to stay at home with mum and dad in order to save up for a deposit, aren’t having much luck either. The drop in interest rates – which should have made mortgages more affordable – have, of course, affected savings accounts so that it’s hardly worth opening one in the first place.
Mortgage analysts aren’t surprised by what has been viewed by many as a rather ‘underhand’ increasing of interest rates by the big lenders. They say that they were to directly apply the rate cut without ‘leveling out’ charges then their profit margins would plummet, annoying shareholders.
Coreco’s Andrew Montlake added: “The banks are attempting to protect their own margins. [You will find] this kind of move is not uncommon in a falling market.”
Lenders to continue low deposit mortgages into 2017
But it’s not all bad news. Although Help to Buy ended at the end of last year, many lenders have vowed to continue the five per cent deposit offer for first time buyers. Many of these rates are below three per cent and come with cash back incentives or no fees. Fixed rates range from two up to 10 years. Companies currently offering the best fixed rate deals for first time buyers with low deposits include Barclays and the Yorkshire Building Society.
Ongoing initiatives for first time buyers
Meanwhile the government’s Equity loan scheme for first time buyers (and existing householders looking to upscale) lasts until 2021. With this initiative up to 20% can be borrowed (40% in London) with only a five per cent deposit and no loan fees for five years. Shared Ownership is another lifeline for first time buyers and involves buying a share of a new build and paying rent on the rest. It’s available to buyers earning less than £80,000 a year (£90,000 in London).
Meanwhile, first time buyer’s intent on squirreling their money away in a Lifetime Isa (Lisas) in order to receive a 25% boost towards a property up to £450,000 can sign up next April. Watch out for the stampede…
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