First-time buyer mortgages slashed by more than half – what to do now

FIRST-TIME buyer mortgages have been slashed by more than half, making it harder for people to get on the property ladder.

A number of banks pulled products following the former Chancellor Kwasi Kwarteng’s mini Budget.

And according to data from consumer site MoneyFacts, first-time buyers looking for a low-deposit mortgage are among those most affected.

The number of mortgage deals requiring a 10% deposit fell from 725 at the start of the year, to 390 on September 23 – the day of the mini-budget.

And the number of mortgages at a 95% loan-to-value dropped from 347 in January to 135 following the budget announcement – a 65% fall from the start of the year.

This is because the swathe of tax cuts announced in the mini-budget spooked the markets.

Lenders struggled to make pricing decisions amid the uncertainty, which has led many to withdraw mortgage products.

As well as fewer deals on offer, the rates available are higher than before.

For example, the average rate on a two year fix has risen from 2.38% on January 1 to 6.55% on October 21.

Mortgage brokers said they haven’t seen anything like it since the credit crunch of 2008. 

Buyers are also being squeezed by the rising cost of living.

Banks use a households’ outgoings to work out how much an aspiring homebuyer can afford to borrow and repay.   

As living costs rise, banks typically lower the amount they will lend.

Eleanor Williams, finance expert at MoneyFacts, said this means first time buyers may be finding it harder to secure a mortgage.

She said: “The cost of living crisis shows no sign of abating.

“Inflated house prices may be a concern for those worried about stretching to meet a deposit, and these borrowers may find themselves having to dip into their savings pot to cover rising expenses.

“So not only may they be more likely to be looking for a low-deposit mortgage product, but they may also have concerns about meeting mortgage affordability requirements.”

I’m a first-time buyer – what now?

It can seem an especially scary time to take that first leap into home ownership with rising costs.

But that does not automatically mean that buying a house is off the cards.

Eleanor says first-time buyers shouldn’t just assume that their own bank is offering the best rate, and they shouldn’t be afraid of shopping around.

She said: “First time buyers should engage with a whole of market mortgage broker as soon as they intend to start their property search to ensure they are considering all the best options in the market.

“More, now than ever, there can be a big difference between what certain banks are offering so assuming your own bank is offering you the best rates may well not be the case at the moment.”

Brokers assist by helping you work out your financial situation, find the best mortgage deals for a fee.

They can also help by highlighting any schemes that could provide some support – such as Help to Buy or Shared Ownership schemes.

Eleanor added that first time buyers should check they are still able to borrow the amount they may have been quoted a few weeks ago.

This is because some lenders have toughened their affordability calculations since then.

These checks are lender’s way to calculate how much they are willing to let you borrow and if they think you can keep up with payments.

If you think you may struggle with your repayments, then extending your mortgage term could help, Eleanor said.

For instance, if you took out a £250,000 mortgage at a fixed rate of 3,5%, you can expect to pay back around £375,596 over 25 years.

The monthly repayments would stand at around £1,252.

But it you took out the same mortgage on the same fixed rate for 30 years, you would pay back around £404,301.

But your repayments would be lower, standing at around £1,123.

This is often subject to their age and criteria set by the lender.

You should try to avoid doing this unless you need to though, as a longer mortgage term means you’ll pay back more interest overall.

David Hollingworth from mortgage broker L&C said having a bigger deposit might help to increase choice for first time buyers.

While this isn’t realistic for most people, there are schemes like the Lifetime Isa that can help boost deposit savings for first time buyers.

David said: “Schemes like First Homes can offer discounted prices for first time buyers but that will require the borrower to meet eligibility on specific properties.

“If you do only have a small deposit then it’s important to shop around for the best rates especially as rates have been rising so rapidly. 

“It could still provide the opportunity to buy the right property sooner than you’d otherwise be able to. 

“However affordability is also likely to be tighter given the higher cost of living so make sure that you do the sums to understand what will work for you.

You can use a mortgage calculator to help you calculate how much you can expect to borrow from the bank.

The Sun has put together a handy guide to mortgage calculators here.

Earlier this month, The Sun’s Head of Consumer gave her expert advice on what you can do now, which we’ve rounded up below.

Martin Lewis has also called for “regulatory preparation and intervention” to prevent a “mortgage ticking time bomb” from exploding.