Despite plans by the Chancellor to scrap 99% mortgages, high loan-to-value (LTV) rate cuts and a new mortgage scheme are positive signs for first-time buyers says Harley Trower, Mortgage Broker at Knight Frank Finance.
Chancellor, Jeremy Hunt, this month scrapped plans to create a 99% mortgage scheme for first-time buyers, after lenders warned the move would push up defaults on mortgage payments.
While the news will be disappointing for anybody trying to get a foot on the property ladder, in recent days Knight Frank Finance has seen a surge in lenders cutting rates on high LTV ranges as well as the launch of a new scheme offering buyers sub-1% mortgage rates for some new build homes.
Virgin Money and Halifax have become the first two major lenders to sign up to the scheme, which was launched by Own New in February. Known as the ‘Rate Reducer’ scheme, buyers can secure rates as low as 0.99%* on new build properties with selected housebuilders.
Under the scheme, the housebuilder contributes 3% or 5% of the property’s purchase value as an incentive, which goes to the lender. The lender then offsets this against the mortgage interest, which reduces a buyer’s monthly payments for the first two or five years, depending on the length of their term.
Own New also offers the Deposit Drop scheme, which lets people buy a property with a 5% deposit, although this cannot be used in conjunction with the Rate Reducer.
Housebuilders signed up to the Rate Reducer include Barratt Developments - who worked alongside Own New to set up the scheme - Persimmon, Taylor Wimpey, Bellway and Berkeley Homes.
“We haven’t seen interest rates this low for well over two years, so this is an exciting scheme that’s hot off the press,” says Knight Frank Finance Associate, Harley Trower, who works in the New Homes team. “Currently, it is only being offered via an intermediary broker. Knight Frank Finance is one of 70 firms who have access to it. Any prospective buyers who are interested in this product should contact our team to see whether this is the right fit for them.”
Elsewhere, major lenders, including Halifax, Santander and Nationwide, have been cutting their high LTV rates in recent days. The best 95% mortgage rates are now sitting at around 4.90%, while 90% rates can be found at 4.55%.
On this Hina Bhudia, Knight Frank Finance Partner, says, "Borrowers at the foot of the property ladder will be disappointed that the Chancellor has opted against introducing 99% mortgages, but conditions are now beginning to improve as the lenders battle for market share.
"Almost all of the major lenders have cut mortgage rates at high LTVs and for new build homes in recent days. The lenders begin the year with new targets and are eager to make headway. Margins are very thin and, in many cases, higher LTVs and new homes were the last places left where lenders could still make cuts. Conditions should continue to improve as inflation eases, but a lot will depend on how the data develops over the coming months.”
If you’re a first-time buyer and would like to find out more about whether you’re eligible for these products, please speak to our specialist team who will be able to help you identify the best option for your circumstances.
*Available on a two-year fixed term at 60% LTV.