Mortgage lending companies are charging higher rates of interest to first time buyers simply because they have less money to put down as a deposit.
According to the Daily Telegraph, this situation has only come about in the last three years. Prior to that, first time buyers paid the same interest rates as other home buyers borrowing the same amount.
Defaqto, the financial statistics group found that a first time buyer who puts down a 10% deposit on a 5 year fixed rate £150,000 mortgage will pay £1,727 a year more than somebody with a 25% deposit.
Three years ago there was hardly any difference between the contractor mortgage rates for 60%, 75% or 90% LTV, but the premium now can be as much as 2% for people borrowing at 90% LTV.
First time buyers are definitely having it hard at the moment. In 2005, 37% said they need the help of their parents to buy a home, according to the CML. Now the figure is a staggering 84%. And only 34% of all mortgages are granted to first-time buyers now; the lowest percentage since the start of the recession.
There are low deposit schemes out there, but to avail of them, first-time buyers often need a parental guarantor or the family property is used as collateral against the loan.
Lloyds for example, has a Lend a Hand scheme whereby the borrower only needs a 5% deposit. However, the loan is secured against a guarantor’s savings, which must equal at least 25% of the value of the property. The guarantor does earn interest of 3.75% on the savings and will be released from the obligation after 3 years providing there is at least 10% equity at that time.
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