Best mortgage deals for first-time buyers
Our first-time buyer has a 10% deposit and is looking to buy a £200,000 property over 25 years. She’d prefer to fix her interest rate as she expects the base rate to rise in the future.
For ease of comparison, we’re assuming any fees are paid up front, and if you can afford to do so it’s worth it. If you don’t, interest will be charged on the fees, which will add hundreds of pounds to the overall cost of your mortgage.
Yorkshire Building Society has the most competitive fixed-rate deal for first time buyers. It charges 2.49% until October 2018. There is no fee and £250 cashback on completion. Repayments are £807 a month, and £19,118 over the first two years. The standard variable rate is 4.74%, which would push repayments to £1,008 if our buyer doesn’t remortgage (or rates don’t change).
Alternatively, if buyers are willing to pay an up-front fee it’s possible to get a sub-2% fixed rate mortgage with a 10% deposit. The Nottingham Building Society has the lowest fee (£999), and the rate is fixed at 1.99% until January 2019. This mortgage costs £762 a month and £19,287 over the first two years. Watch out for the eye-watering 5.74% SVR, which will bump repayments to £1,102 after the fixed rate period.
Longer fixed-rate deals
If you want to lock in a rate for longer, you’ll need to pay a £200 monthly premium, roughly, to access the longest ten-year fixed-rate deals.
Nationwide, charges 3.99% with no initial fee. Monthly repayments are £949, so this deal costs £22,776 over the first two years. The SVR is 3.74%, so repayments will actually fall to £933 a month, in 2026, assuming the base rate doesn’t change, though it’s quite likely it will during the next decade.
The Bank of Ireland’s five-year 3.14% fix has no fees and £500 cashback. That’ll cost £867 a month and £20,308 over the first two years. After two years the variable 4.24% rate will push repayments to £954.
For buyers who are willing to risk a rate rise (or gamble on a further rate cut), the Leek Building Society lends at 1.89% for two years, at a rate that tracks its SVR (5.19%). That costs £753 a month and £18,072 over two years, as there are no up-front fees. Buyers will have to find almost £300 a month more to cover mortgage payments when the SVR kicks in.
Better rates are available with larger deposits.
At 75% loan-to-value, Yorkshire Building Society offers a two-year fix at 1.74%. There are no upfront fees and £250 cashback sweetens the deal. Monthly repayments are £617 so the effective two-year cost is £14,558. The standard variable rate is 4.74%, so if rates don’t change repayments will rise to £835 per month.
If you’re looking for interest-only options, remember the rules are now a lot stricter and you’ll need to show a well-thought out plan for repaying the capital at the end of the mortgage. Monthly repayments are much lower than with capital repayment, but you'll pay more interest on an interest-only mortgage in the long run.
Not every provider will lend on an interest only basis, so if you’re looking for one it’s best to speak to a mortgage broker. Our mortgage tool can help you get a feel for the rates on offer.
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Every mortgage lender has a standard variable rate of interest, or SVR, on which it bases all its mortgage deals, including fixed and discounted rate and tracker mortgages. When special deals come to an end, the terms of the deal usually state that the borrower has to pay the lender’s SVR for a period of time or pay redemption penalties. The lender’s SVR is, in turn, based on the Bank of England’s base lending rate decided by the Bank’s Monetary Policy Committee (MPC). Every time the MPC raises its rate, mortgage lenders generally increase their SVR by the same amount but when the MPC lowers its rate, lenders are often slow to pass this on or don’t pass on the full cut to borrowers.
A loan in which the borrower pays only the interest on the sum borrowed for the life of the mortgage but, at the end of the mortgage term, they still owe what they originally borrowed as this remains unchanged. The advantage of an interest-only mortgage is the monthly repayment is considerably lower than for a comparable repayment mortgage. Lenders generally insist the borrower also invests in an endowment, ISA or pension savings policy that, on maturity, is intended to pay off the capital loan.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.
Also referred to as the bank rate or the minimum lending rate, the Bank of England base rate is the lowest rate the Bank uses to discount bills of exchange. This affects consumers as it is used by mainstream lenders and banks as the basis for calculating interest rates on mortgages, loans and savings.