Saving For A Deposit Is Now Essential
It appears that borrowers with bad debts may be fairing better in the mortgage market than many first-time buyers. People without a deposit are being squeezed out of the house-buying market. Yet those who have missed up to three mortgage repayments in a year will be able to carry on with their mortgage and be better off than a first-time buyer. This appears to fly in the face of popular wisdom which has suggested that the sub-prime crisis in the US and the credit crunch will hit those with poor credit records the hardest.
At the moment Bradford & Bingley is offering the best no-deposit deal for a first-time buyer at 6.89% and a fee of £999.
However, a borrower who has missed three mortgage repayments (and labelled as sub-prime), could get a better rate of 6.69% with a fee of £995 from Chelsea Building Society.
Those rates would mean that over a year, the borrower with the bad credit record would end up paying £200 less than the poor first-time buyer without a credit blemish on a £130,000 loan.
It looks as though first-time buyers are being abandoned as the credit crunch continues to bite. The 125% mortgage deals have all gone, and some lenders are refusing to lend to borrowers who haven’t got a deposit. Nationwide recently introduced higher rates for those with less than 25% deposit, and Lloyds TSB has said that it will only lend on 90% of the property price.
There are now just 11 banks and building societies offering 100% mortgages, whereas a year ago it was 27. Interest rates have gone up on products that are available.
In March 2007 the interest rate was 5.25% - as it is now - and the best 100% deal was 5.79%. Today the best deal is over 1% higher than that. If you have a deposit you will benefit from a much reduced interest rate. For example, at Newcastle Building Society a 5% deposit enables you to get a rate of 5.25% for a £999 fee - a saving of £2,700 in two years of repayments.
Chris Rayner of The Mortgage House said: “First-time buyers are increasingly being seen as risky by lenders - even more than sub-prime. It really is essential to save for a deposit these days.”
Author: Garry Pierrepont
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