In recent times, the prospects on the housing market for young people seemed pretty bleak. Despite overwhelming advice to save for a deposit
After all, it was only back in August 2015 that the Huffington Post described the plight of the Boomerang generation.
Clearly a problem for young people on both sides of the Atlantic, the main issue was spiralling debt. This left them unable to afford monthly repayments amid sky-high mortgage rates.
A ray of sunshine beyond the financial clouds
Yet in what may seem like the first bit of good news for first-time in a while, UK mortgage rates have dropped to their lowest levels in five years.
Now – buyers able to stump up a 10% deposit have the option of paying only one per cent more than owners with 40% equity on monthly repayments.
The average two-year fixed rate on a 90% Loan to Value (LTV) mortgage rested at 3.01 per cent on May 25 this year and remains stable. This figure is just over 50% of the 3.92 per cent it was back in 2011.
Can buyers with larger deposits get an even better deal?
While saving for a larger deposit is still considered the best advice for getting your first step on the property ladder, this, it seems, may not always be so straightforward. Those looking for advice on how to save a home deposit should be aware that larger sums, on average, only qualify at a rate of 1.98% for a 60 per cent LTV mortgage.
This is only 1.03 per cent lower than the rate available to those whom lenders deem to be the riskier buyer with a smaller deposit on 90 per cent LTV.
The disparity here is that first-time buyers with a £200,000 mortgage on 60 per cent LTV can expect to pay £949.46 per month, in contrast to the £756.36 paid a buyer with far more equity in a home with the same price tag. So, going for a mortgage with higher equity would seem like a much more sensible choice.
How is all of this possible?
Much of this comes down to the launch of the Help to Buy scheme. This government scheme made lenders feel much more at ease about the idea of lending at a higher LTV.
One effect of the scheme is that even first-time buyers looking for a mortgage at 95 per cent LTV won’t be disappointed. The recent announcement that this scheme will be extended until 2020 will therefore come as welcome news. The future now seems brighter for the many people looking to get their feet on the housing ladder.
Skint Dad contributors offering a different and unique voice to help you save, learn and earn.