FTBs suffer from higher deposit requirements and increased mortgage costs

The cost of a first-time buyer (FTB) house has increased by almost £10,000, resulting in raised monthly and annual costs for FTBs taking out average mortgages, mortgage insurer AmTrust has found.

In its latest LTV Tracker, the firm highlighted that, while average rates continue to drop for both 75% and 95% LTV borrowers, the average price of a FTB property has increased by almost £10,000 since its last tracker, raising average deposit levels and monthly mortgage costs.

According to the latest UK Finance figures, the average FTB property price has risen from just under £169,000 to over £177,000, resulting in increased monthly and annual costs for borrowers that can either put down a 5% or 25% deposit.

The monthly mortgage cost disparity for average FTBs seeking averagely-priced homes continued to be high, with 95% LTV borrowers continuing to pay close to 50% more for their mortgages than those at the 75% LTV level. Alongside this, there is a continued decline in average mortgage rates, with rates dropping from 3.23% in Q4 2018 to 3.03% in Q1 2019 for a 95% LTV mortgage. There was also a quarterly drop in average rates for 75% LTV borrowers, with a fall from 1.75% to 1.68%.

As a result of this, the rate differential between 75% and 95% LTV loans has persistently narrowed, declining to 1.35% in Q1 from 1.49% in Q3 last year. AmTrust revealed that those with smaller deposits pay an average of £801 per month (£9,612 per year), while those who put down a 25% deposit pay an average of £543 per month, or £6,516 per year.

AmTrust said that increased competition in the mortgage market continues to drive average rates lower, especially with lenders seeking to secure greater levels of FTB business. Its product number data also shows that while the number of 75% LTV products has fallen quite significantly this quarter, there has been an increase in 95% LTV products.

Furthermore, there seems to be a growing appetite to lend to FTBs with small deposits from lenders, and this translates into greater product choice for 95% LTV borrowers, with the latest tracker revealing an increase in mortgage options across both two-year and all-term products.

As it found in its previous tracker, AmTrust noted an increase in product number across the entire 95% LTV product sector, but a fall for all 75% LTV options. Two-year product options for 95% LTV comfortably moved beyond three figures across all three scenarios, while those looking at all mortgage terms and options, had more than 260 products to choose from.

While all 75% LTV product options have however fallen by close to 10%, borrowers that possess a 25% deposit still have over 600 two-year product options to choose from and over 1,450 options when choosing the most suitable mortgage options. Those with a 25% deposit are granted access to over five times as many mortgage products as their 95% LTV counterparts.

However, AmTrust stated that the significant dip in 75% LTV options could be a result of a number of lenders closing for new business since the start of the year, while the increase in 95% LTV products might be down to lenders feeling the need to go further up a perceived risk curve in order to secure business in what is a still highly-competitive marketplace.

Commenting, AmTrust mortgage and credit business development director Patrick Bamford said: “This iteration of our LTV Tracker comes complete with a number of in-built contradictions.

“On the one hand average rates for both 75% and 95% LTV borrowers have fallen, which ordinarily might result in a continuing fall in monthly and annual mortgage payments for first-timer buyers. However, this is not the case because the average first-time buyer house, according to UK Finance, has risen in cost by close to £10k since the last Tracker, resulting in the requirement for an increased deposit and an increased loan amount which has increased mortgage costs.

“So even with rates continuing to hover close to record lows, increased house prices mean that the average mortgage amount both a 75% and a 95% LTV borrower must pay has risen.”

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