Are Sizeable Deposits the Key to a Good Mortgage Deal?

by Mark Johnston

Are Sizeable Deposits the Key to a Good Mortgage Deal?

Many different figures have shown that compared with the years before the 2007 banking crisis there has been at least a 50 per cent drop in the total number of mortgages available on the market.

For those would be buyers with big deposits, regular incomes and not forgetting the squeaky clean credit records, the current lending market seems to be a bazaar that offers a delicious array of cut price offers.

However, cash strapped first time buyers and so called ‘second steppers’ with little to no equity, all is not so bright at the moment.

Despite the Bank of England’s base rate remaining at the historically low level of 0.5 per cent, banks have still rationed their lending in order to conserve their funds.

Some mortgage experts suggest that many mortgage lenders now prefer to only lend to those borrowers they regard as ‘low risk’ and they then reward these borrowers by offering them considerably better rates than any one else.

Although, recent data does show that rates are still pretty good for those customers with smaller deposits with rates averaging around 5 to 6 percent. But these rates are still around double those that borrowers with larger deposits or equity can access, these borrowers can access rates at less than 3 per cent.

These rate differences are not just a problem for first time buyers, second steppers are also having problems especially those who bought their homes in the peak of 2007/08. they have seen their property drop in value considerably therefore erasing their potential deposits for future buys.

So is there any hope for first time buyers and second steppers with low deposits?

Well, the Financial Service Authority (FSA) reported that the number of mortgages sold to first time buyers increased by 53 per cent between the second quarter of 2011 and the first quarter of 2012.

However, many financial experts have put this down to the rush of buyers taking advantage of the stamp duty holiday which ended in March this year.

There is also the governments ‘new buy’ scheme, which allows first time buyers to purchase a new build property with just a 5 per cent deposit.

Not forgetting the Bank of England’s new ‘funding for lending’ scheme which allows banks to borrow money at a cheaper rate which they can then pass on to home owners and potential home owners.

More recently the government has announced a £280 million extension to its ‘first buy’ scheme. They believe that this particular scheme will help around 16,500 first time buyers own their own homes.

Christine Scarborough, from Taylor Wimpey, a property builder, said “we are predicting 2013 to be a great year for first time buyers”.

This sentiment however is not share by all and Alan Milstein, chairman of the Residential Property Surveyors Association, stated that “unfortunately for first and second time buyers, it looks like we can expect much the same for 2013, with mortgage lending remaining weak”.

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