Only Finance.com® - First time buyers lose out on best rates

Mortgages - First time buyers lose out on best rates - 26/02/2008

First-time buyers chances of getting on the housing ladder have been hit again, with banks increasingly reserving their best interest rates for those putting down larger deposits.

Nationwide is the latest bank to raise the threshold for their best rates, following Alliance and Leicester's and Abbey's decision to pull out of very high lend markets earlier this month. A 25 per cent deposit is typically required to currently gain their best deals. Those having to borrow more and putting down less are subject to interest rates that are 0.2 per cent higher. That might not sound like much, but it effectively wipes out the impact of the Bank of England's last interest rate cut, which was intended to help get more first time buyers on the ladder.

Melanie Bien, director of the independent mortgage broker Savills Private Finance explained that: "It is a bit of a return to the old days, when much heftier deposits were required. But now they are chasing margin, not market share, so the emphasis has shifted back."

With fewer people willing or able to take out mortgages, it appears that property prices will continue to fall, as they have done for the fifth-successive month. Many lenders appear worried that borrowers are over-stretching themselves and are reluctant to let people take out massive mortgages when the economy in general appears to be slowing down.

It is not all bad news however, as Scottish Widows and Dumferline building society are still players in the 100 per cent loan club. For how much longer remains to be seen however, as the longer the market is in decline and the longer the credit crunch continues, the likely-hood of higher interest rates increases. For those on variable-rate mortgages this can only be bad news as the more people that default on repayments, the less mortgage lenders trust borrowers.

Sean Gardner of comparisons site MoneyExpert.com, said: "Many lenders are now concerned about borrowers overstreching themselves- and not being able to pay them back- as in the last six months over 500,000 homeowners missed a mortgage payment, according to our research."

Good deals still remain and falling house-prices also mean this is a buyers market for the first time in years. However getting those good deals is harder and rule of thumb at the moment has to be that the more you can put down, the better the deal you will attract.