Over the last year, the Bank of England base rate has fallen steadily from its 15-year high of 5.25% to 4%. That’s resulted in good news for borrowers, with many mortgage interest rates continuing on a downward trajectory.
For those looking to borrow at 90% LTV, the average 5-year fixed rate has fallen by 0.45% in the last year and 2-year fixed by 0.84%. In addition, Moneyfacts UK Mortgage Trends Treasury Report data reveals the combined choice of higher loan-to-value mortgages (90% and 95% LTV) rose to its highest count in 17 years. (Source: Moneyfactscompare.co.uk)
The good news is there is another base rate cut predicted before the end of this year. Capital Economics is then forecasting it will reach 3% by the end of 2026 – a revision from its previous prediction of 3.5% - and all this should have a further positive knock-on effect on mortgages.
And there is further good news, particularly if you are on a lower income and looking to take your first step on the property ladder.
Support for first-time buyers
In their election manifesto, Labour pledged to help first-time buyers – particularly those on low incomes - through the establishment of a permanent version of the mortgage guarantee scheme that was introduced during the Covid pandemic and ended on 30th June this year.
The new scheme provides lenders with a government-backed guarantee for 91%-95% loan-to-value (LTV) mortgages, which is now available to both FTBs and home movers. This means that if the borrower defaults on repayments, the government will cover at least some of the lender’s losses.
There have also been changes to the loan-to-income (LTI) threshold, which took effect on 11th July following announcements from the Prudential Regulation Authority and Financial Conduct Authority. This means around 80 lenders now have the flexibility to offer mortgages at more than the usual 4.5 times income. Nationwide’s ‘Helping Hand’ is just one example of a product that allows FTBs to borrow up to six times their annual salary.
Of course, even if you are able to borrow more, it’s important to carefully assess your income and expenditure to make sure:
- You are comfortable taking on a higher level of debt, and
- Don’t feel ‘stretched’ by the higher monthly repayments.
Three ways for first time buyers to get on the ladder
Although the Help to Buy Scheme isn’t available to purchase a new build property, there is still support you can secure to get on the ladder.
Lifetime ISA
You can still boost your deposit through a Lifetime ISA. This will support you buying your first home or saving for later in life:
- The Lifetime ISA enables you to save up to £4,000 per year
- The government will top up your savings by 25% - up to a maximum of £1,000 per year
Find out more: https://www.gov.uk/lifetime-isa
First Home Scheme
If you are in England, you may be able to purchase a home for as much as 30-50% less than its market value as long as you are eligible which means:
- you are over 18
- the property must your first home and your only or main residence
- can secure a mortgage for a minimum of half the price of the property
- earn less than £80,000 (or £90,000 in London) in the previous tax year
Properties you can purchase will either be new builds through a developer or a property that has previously been bought through the scheme.
Find out more: https://www.gov.uk/first-homes-scheme
Own New Rate Reducer – sub 1% rates are available
This scheme enables you to secure a lower initial mortgage interest rate on a new build property, which utilises developer incentives paid to the lender.
This scheme can offer:
- Lower mortgage payments during the initial 2-5 year fixed term
- Increased affordability
And it’s not just first time buyers that can have access, it can also be available to home movers as long as they buy a new build from a ‘partner’ developer.
Find out more: https://www.ownnew.co.uk/
