Best mortgage deals for first-time buyers
Each week, Moneywise reviews the market to show you the best variable and fixed rate deals currently available for high loan to value (LTV) borrowers.
Remember that once any fixed rate period ends the mortgage will revert to a standard variable rate (SVR), so make a note in your diary and switch to a cheaper deal when that happens.
Our example first-time buyer has a 10% deposit and is looking to buy a £200,000 property over 25 years. For ease of comparison, we’re assuming any bank or building society fees are paid up front. Otherwise interest will be charged on the fees, which will add hundreds of pounds to the overall cost of your mortgage.
Fixed rate deals
Hinckley & Rugby Building Society, up to 90% LTV, 2.29%
Fixed for two years followed by 1.65% discount off SVR for the next three years, then reverts to SVR (currently 5.64%)
This deal from Hinckley & Rugby comes with no fees for borrowers. Repayments are £789 a month, which is £9,586 a year over the first two years.
Loughborough Building Society, up to 90% LTV, 2.19%
Fixed for two years then reverts to SVR (currently 4.84%)
The Loughborough also has a competitive fixed rate deal for first-time buyers. Its two-year 2.19% fix comes with a £499 product fee will cost £780 per month, £9,606 per year over two years. Despite being a smaller mutual, Loughborough lends across England and Wales.
Longer fixed rate deals
Leek United Building Society, up to 90% LTV, 2.55%
Fixed until 30 June 2022 then reverts to SVR (currently 5.19%)
For those looking to fix for a longer period the Leek offers a 2.55% rate, fixed until June 2022. This mortgage costs £812 a month - £9,981 per year over the fixed period - and comes with £995 in fees.
Nationwide, up to 90% LTV, 3.89%
Fixed for 10 years then reverts to SVR (currently 3.74%)
Many 10-year fixes are also available if you're willing to fix for longer. If you’re comfortable paying a upfront £999 product fee, Nationwide offers a long fix with a rate of 3.89%. This will involve monthly repayments of £939 and an outlay of £11,408 per year.
Variable rate mortgages
Loughborough Building Society, up to 90% LTV, 1.89%
2.95% discount for two years then reverts to SVR (currently 4.84%)
For buyers who are willing to risk a rate rise (or gamble on a further rate cut), Loughborough Building Society offers a 2.95% discount for two years. There is no cashback incentive and there is an upfront product fee of £499 payable. The annual cost is £9,290.
Yorkshire Building Society, up to 75% LTV, 1.79%
Fixed until 30 April 2019 then reverts to SVR (currently 4.74%)
There are no upfront fees and £250 cashback sweetens this deal. Monthly repayments are £621 so the effective annual cost is £7,424.
Hanley Economic Building Society, up to 80% LTV, 1.64%
Fixed until 28 February 2019 then reverts to SVR (currently 4.94%)
The building society offers a two-year fixed rate up to 80% LTV at 1.64%. There are no fees with this mortgage. The monthly repayments on a £150,000 advance are £610, equivalent to £7,435 a year.
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.
Loan to value
The LTV shows how much of a property is being financed and is also a way to tell how much equity you have in a property. The higher the LTV ratio the greater the risk for the lender, so borrowers with small deposits or not much equity in the property will be charged higher interest rates than borrowers with large deposits. The LTV ratio is calculated by dividing the loan value by the property value and then multiplying by 100. For example, a £140,000 loan on a £200,000 property is a LTV of 70%.
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.