The housing market looks primed for a spring bounce as first-time buyers return in force and increasingly confident sellers start hiking prices. The average UK asking price has just hit £244,706, up £15,717 since the start of the year, according to new figures from Rightmove, with the biggest rises outside London.
First-time buyers are streaming back into the market, with an extra 3 per cent in February alone, the best start to a year since 2008 according to the Council of Mortgage Lenders. Numbers are up 17 per cent on 12 months ago.
These figures suggest Government-backed attempts to stimulate the housing market and revive the UK economy are having an impact, by making cheaper mortgages more widely available.
So is now a great opportunity for new buyers to get on the property ladder and existing homeowners to secure a cheaper mortgage?
Mortgage rates have fallen steadily since last July when the Bank of England launched its £80 billion Funding for Lending Scheme (FLS), which encourages banks to offer cheaper mortgages and business loans.
The FLS has given borrowers a wider choice of affordable mortgages, says Brian Murphy, head of lending at the Mortgage Advice Bureau.
“The total number of mortgages has risen more than 20 per cent since the FLS was launched, while the average fixed rate has dropped more than 0.5 per cent. We expect that trend to continue.”
House prices are set to get a further boost from Chancellor George Osborne’s £130 billion Help To Buy mortgage guarantee, which will give homebuyers a free loan worth 20 per cent of their property’s value, allowing them to secure a mortgage with a 5 per cent deposit.
These schemes are making credit more affordable and persuading lenders to ease their draconian criteria, says Chris Love, director of mortgage broker Mortgage Simplicity. “They have unleashed pent-up demand from first-time buyers, as many who put their dreams of ownership on hold are finally taking the plunge. First-time buyers have accounted for more than 40 per cent of mortgages for the last six months.”
Yet aside from a few property hotspots, people’s faith in house prices remains weak. “The market is in a much better state than this time last year, but still isn’t back to full health,” Love says.
Housing activity always picks up at this time of year but these latest figures are encouraging, says David Hollingworth, broker at London & Country Mortgages.
“The lack of mortgages has been a key factor in holding back prices in recent years, but now it is possible to get competitive rates at higher loan-to-values (LTVs).”
Although lenders still reserve their best deals for buyers with deposits of 25 per cent or even 40 per cent, buyers with 10 per cent or 15 per cent deposits can also get eye-catching loans, Hollingworth says.
“Chelsea Building Society offers a two-year fixed-rate charging just 3.69 per cent up to 90 per cent LTV, although it does carry a pricey arrangement fee of £1,675.”
It is still a lot more expensive than Chelsea’s two-year fix up to 60 per cent LTV, which costs just 1.74 per cent, also with a £1,675 arrangement fee.
Mortgages remain notably more expensive if you only have a 5 per cent deposit.
“Melton Mowbray Building Society offers a three-year fixed rate for first-time buyers up to 95 per cent LTV but this costs 5.49 per cent with a £998 fee,” Hollingworth says.
The Government has funded a string of schemes aimed at helping buyers with smaller deposits get on to the property ladder, including HomeBuy, FirstBuy and the NewBuy Guarantee scheme.
NewBuy, called MI New Home in Scotland, allows buyers to purchase a new-build home from participating builders with a deposit of just 5 per cent.
“Nationwide Building Society offers an attractive three-year fix at 4.44 per cent up to 95 per cent LTV through the scheme, with a £99 fee. Santander, NatWest, Woolwich, Halifax and Aldermore also offer NewBuy mortgages,” Hollingworth says.
First-time buyers with small deposits can get attractive rates if family members are prepared to act as loan guarantors, Hollingworth adds.
“The Woolwich Family Springboard offers first-time buyers with a 5 per cent deposit a three-year fixed rate at 4.69 per cent, with a £499 fee, provided a family member pays a further 10 per cent into a savings account.”
The savings account pays 2 per cent a year for three years. “Guarantors must understand that their money is at risk, because it will be used to cover any shortfall if the buyer defaults on their loan,” he says.
Bath Building Society, National Counties Building Society and Aldermore Bank all offer higher-LTV mortgages to first-time buyers with a family guarantor.
Aldermore even offers a 100 per cent mortgage in return for a 25 per cent charge against the guarantor’s property, although its rates aren’t cheap.
Lloyds TSB’s Lend a Hand mortgage is available to first-time buyers with a 5 per cent deposit, provided a family member deposits 20 per cent of the property’s value into a savings account. The mortgage is a three-year fixed rate at 4.4 per cent, and Lloyds pays a fixed 2.7 per cent on the savings account.
Although things are improving for buyers with smaller deposits, the keenest rates are still reserved for those who can put down 40 per cent of their property value.
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