Hope for first time buyers

by Ed Bowsher on 15 September 2009  |  6 comments
Tweet

First-time buyers are gradually being offered better mortgage deals. I especially like a 5-year fixed rate deal from RBS. Coventry Building Society has today launched a good deal too.

It's been a really tough year for first-time buyers. Thanks to the credit crunch, the banks have been reluctant to lend to any home buyer with a small deposit. 

So I was pleasantly surprised when I heard about Coventry Building Society's new First Time Buyer Members' Mortgage, which is being launched today. It's a five year fixed-rate mortgage at 5.99% with a 10% minimum deposit. The booking fee is very low at £199.

Now you might think that 5.99% is high when the Bank of England's base rate is only 0.5%. But there are two things to remember here:

-          It's a deal for first-time buyers with low deposits. 5.99% is an attractive rate for this market.

-          It's a five-year fixed deal. The base rate is going to rise sooner or later. Inflation might take off in 2011, and if that happened, the base rate would rise very quickly. 5.99% for 5 years could turn out to be a very good deal indeed.

However, there's one very big problem. The mortgage is only available for people who have held a Coventry savings or current account for the last three years. Or whose parents have had an account or a mortgage with Coventry over the same period.

Sigh....

But hearing about Coventry's deal prompted to look around the market and I found an equally attractive deal that is open to many more people.

It's a 5-year fixed rate mortgage from RBS*. Like Coventry, the interest rate is 5.99% and the minimum deposit is 10%. Even better, there's no fee. The only restriction is that the deal is solely available to first- time buyers.

What about variable rates?

The lowest variable rate I could find with a 10% deposit came from HSBC. You can get a 2-year variable rate at 3.89% (0.05% below HSBC's standard variable rate.) That's a great variable rate for someone with a small deposit.

The problem is that HSBC can take 6 weeks or longer to approve a mortgage application. That kind of delay is a pain when you're remortgaging, but it can be fatal if you're purchasing a home for the first time. The seller may get fed up waiting and go with someone who can get finance more quickly.

After HSBC, the next best variable rate I could find came from Newbury Building Society. First-time buyers with a 10% deposit can get a 3-year variable rate which starts at 5.45%. That's 1% above Newbury's standard variable rate (SVR) which currently stands at 4.45%. If you're willing to apply direct to the building society, anyone with a 10% deposit can get this deal.

Once again, though, you could get caught out if the base rate soars and Newbury's SVR rises in tandem. 

*The deal is called the RBS 5-year fixed rate - First time buyer exclusive

> Get free advice from a broker at lovemoney.com mortgages