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Best place to find cheapest mortgage deals for first-time buyers with a small deposit – it’s not high street banks
First-time buyers can even get deals without a deposit
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BUYERS with small deposits should look past big name banks and head to relatively unknown lenders for the best deals.
Aspiring homeowners can get mortgages that are designed to help them on to the ladder in a range of different circumstances if they search the wider market, according to data analysis firm Moneyfactscompare.co.uk.
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Building societies typically offer rates lower than the market average for 90% and 95% Loan to Value (LTV) mortgages favoured by first-time buyers, the report said.
Plus, these smaller lenders have created a slew of innovative products for buyers in recent months.
Building societies are owned by members where as banks typically work to please shareholders and investors.
The average market rate for a two-year fixed-rate at 90% LTV is 6.2 per cent whereas that offered by building societies is 5.76%.
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And the average five-year market rate at 95% LTV is 5.66% compared to 5.47% from building societies, Moneyfacts data showed.
At the same time, building societies are creating more deals outside the conventional offerings to help those with lower deposits.
For example, the track record mortgage from Skipton Building Society which allows buyers to get on to the ladder without any deposit at all.
Yorkshire Building Society now offer a mortgage to buyers with a £5,000 deposit while Leeds Building Society has teamed up with Experian to help would-be buyers boost their credit score.
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Under the partnership, aspiring homeowners could have their subscriptions to services such as Netflix or Spotify contribute to their ability to get a mortgage.
Chris Sykes, technical director at mortgage broker Private Finance, said building societies are differentiating themselves from the big banks on criteria which means how they assess and approve mortgage applications.
He said: "A lot of our complex cases go to building societies, the likes of Harpenden, Tipton, Vernon, Teachers, Market Harborough, Cumberland and many others all do really complex deals that high street lenders definitely couldn’t get comfortable with due to their more rigid criteria."
Even when banks offer lower rates, it may not always be the best deal on a true cost basis, Moneyfacts added.
This is because of other fees that may come with a mortgage can push up the overall cost.
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Rachel Springall, from moneyfactscompare.co.uk, said: “High street banks traditionally have more margin to price their mortgages lower, but the lowest rate deal may not be the best choice when all the costs and incentives associated with the mortgage are included.
“Saving money on the upfront cost of a mortgage is incredibly important for first-time buyers who may have exhausted their cash on a deposit, legal fees and moving costs.
“The key challenge for first-time buyers is affordability, with interest rates higher than they may have expected this year, and affordable housing remaining in short supply.”
Costs of a mortgage vary hugely, with some offering very large product fees which can offset any savings from a lower rate.
Nicholas Mendes, mortgage technical manager at broker John Charcol, added: "Building societies are leading the charge to assist first-time buyers with innovative schemes and expanded criteria.
"These initiatives are designed to help first-time buyers climb onto the property ladder, although each has its drawbacks.
"Therefore, consulting a mortgage broker to explore options tailored to individual circumstances is crucial."
Tips for getting the best mortgage deal
If you're looking for a mortgage there are a few ways to land the best deal.
Nicholas Mendes from John Charcol says first-time buyers can consider the following tips:
- Save a larger deposit: Higher deposits are more attractive to lenders and often result in better interest rates.
- Increase your income: A higher income can improve your affordability rating. Applying with a partner allows lenders to consider both incomes.
- Reduce your outgoings: Lowering your other financial commitments can help meet lenders' affordability criteria.
- Improve your credit rating: Address any issues in your credit history by settling debts promptly. Over time, negative credit events will impact less on your score.
- Borrow less: If affordability is an issue, consider a less expensive property.
- Choose a standard property: Non-standard properties like high-rise flats are often deemed riskier by lenders.
- Seek family assistance: Options include joint mortgages with relatives, gifted deposits, or 100% mortgages with parental security.
To find the best deal it's usually best to use a mortgage broker who can compare for you. You may have to pay for this service ask about any fees upfront.
It's often best to get recommendations from mortgage brokers from friends or family or you can search online for a local business. Unbiased.co.uk also lists mortgage brokers.
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You can use a mortgage calculator to see how much you could borrow.
Remember, that you'll have to pass the lender's strict eligibility criteria too, which will include affordability checks, and looking at your credit file
How do you find the best mortgage deals?
WE explain how to ensure you get the best deal on your mortgage or remortgage:
Websites such as MoneySuperMarket and Moneyfacts have mortgage sections so you can compare costs. All the banks and building societies will have their offers available on their sites too.
If you're getting confused by all the deals on the market, it might be worth you speaking to a mortgage broker, which will help find the best mortgage for you.
A broker will typically cost between £300 and £400 but could help you save thousands over the course of your mortgage.
You'll also have to decide if you want a fixed-deal where the interest you're charged is the same for the length of the deal or a variable mortgage, where the amount you pay can change depending on the Bank of England Base Rate.
Remember, that you'll have to pass the lender's strict eligibility criteria too, which will include affordability checks, and looking at your credit file.
You may also need to provide documents such as utility bills, proof of benefits, your last three month's payslips, passports and bank statement.