The best mortgage rates for first-time buyers

It's been a long wait out in the cold for first-time buyers. Ever since the mortgage market began its meltdown in late 2007, and house prices subsequently started falling, lenders have been very nervous indeed about lending to those with a small deposit.

That's because they are seen as high risk borrowers. The more you are willing and able to put down upfront, the bigger a commitment to repaying the loan you are deemed to have -- fairly or unfairly.

More importantly, the bigger the proportion of a property's value you can put down as a deposit, the greater the buffer you have against negative equity.

If you put 25% down for example your property's value needs to fall by 25% before you owe more on your mortgage than your home is worth. This is good for you but even better for the lender which really wants to protect its asset. After all, if you fall behind on repayments and eventually get repossessed, it wants to know it can flog the property and get its money back.

So the bigger the deposit the better.

When prices were tumbling this meant many first-time buyers were frozen out of the mortgage market as lenders just didn't want to risk lending to those with a tiny deposit. They effectively priced themselves out of this market by charging hugely expensive rates to anyone who could only muster 10% or 15% upfront.

Frankly, unless you had 25% to put down, mortgages were few and far between in 2008 and much of 2009 and, even when you could find them, they were expensive.

So what's changed?

In the last few months the number of products being launched specifically at the first-time buyer market has risen markedly.

In fairness, the number of mortgage products as a whole has shot up according to Mortgage Brain (a firm which provides brokers with up-to-date product data). It says that the total number of mortgage products rose by 26% during January, from 3,534 to 4,457.

This is the seventh month in a row that product availability has increased, with product numbers up 78% on the levels seen six months ago.

But it is high LTV mortgages for those with small deposits that have seen a notable rise in the last few months -- an extremely welcome move.

I asked financial information provider Moneyfacts to look at the changes in numbers of high LTV mortgages -- those up to 85% and 90% LTV -- and its findings confirm there is now much greater choice for first-time buyers.

There are now 144 mortgages available up to 90% of the property's value, for borrowers with just 10% upfront. This has risen from 114 in January -- a significant increase. And considering there were just 101 such products in November 2009 you can see a clear trend.

The picture is similar for mortgages up to 85% of the property's value. There are currently 310 products compared to just 260 last month -- an enormous rise. In fact, the number of mortgages available to those with a 15% deposit has almost doubled in the last year (last February there were just 159).

So lenders patently have a renewed appetite to lend at 85% and 90% LTV, but why? What has changed to make them think that those who were considered high risk last year are now less risky?

All about the asset

The truth is that lenders don't think first-time buyers are now significantly less likely to fall behind on their mortgage than they were a year ago.

Of course, we are just out of recession and unemployment did drop a touch at the last count, so there is bound to be some optimism about our ability to repay our mortgages each month.

But we know that the job market is still on pretty shaky ground and so do lenders. Plus they realise that with interest rates at an all-time low the potential for widespread payment shock when they rise is massive.

But of course, they don't just lend us money based on our ability to pay it back. They also look at the asset their loan is secured against. And stability in the housing market is encouraging more lenders to offer deals to those with smaller deposits. If they thought that house prices were about to plummet again there would not be this trend of higher LTV products being launched.

The house price indices back up this thinking -- Nationwide says prices are now 8.6% higher than a year ago and Rightmove puts them 4.1% higher.

Let's not get over-excited. There is still a possibility that house prices will drop again (some would argue a good chance) and the increased availability of high LTV mortgages is from a very low base indeed.

Even now it is by no means easy to get a homeloan with just 10% upfront and you still have to pay a premium to do so. It's just getting a little easier and a little cheaper month by month, to the relief of first-time buyers.

Below are some of the best deals out there for those with modest deposits:

12 great deals up to 90% LTV

12 crackers if you have 15% upfront

*if you take the lender's home cover the rate drops by 0.24%

**1% cashback

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First, adopt this goal: Cut the cost of your mortgage and pay it off early

Next, watch this video: Getting through the mortgage maze

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