Fall in first-time buyer mortgages

The choice of mortgages for struggling first-time buyers has shrunk in the last year despite Government efforts to unblock the housing market, a financial information website has found.

One year ago, there were 62 deals available for people with a 5% deposit, many of whom would be first-time buyers, making up 2.7% of the market, Moneyfacts said. But one year on that number has dropped to 54 products, equating to 1.9% of all the mortgages on offer.

However, the average interest rate charged on such deals has edged down, from 5.48% in July 2012 to 5.32% by this month.

Across all loans-to-value (LTVs), the number of mortgages on the market has increased by almost one quarter year-on-year, with 2,872 deals now available. But even when the choice of mortgages for people with a 5% deposit is combined with the selection of mortgages for those with a 10% deposit, these still make up just 14% of the market, which is unchanged from a year ago, Moneyfacts said.

Mortgages for people with a "medium-sized" deposit of 15% or 20% now make up 37% of the market, which is up on a year ago. Someone with a 20% deposit will now be typically offered a cheaper rate of 3.73%, compared with 4.36% last July.

Mortgages on offer for people with bigger deposits of around 25% to 40% now make up 48% of the market, which is slightly down on a year ago in terms of market share. Within this bracket, the average interest rate for someone with a 40% deposit has dropped to 3.36%, from 4.37% last July.

Mortgage availability has increased sharply and lenders have been slashing their rates since the Government launched a scheme called Funding for Lending last August which gives lenders access to cheap finance to help borrowers.

The Government's flagship Help to Buy scheme, which will be fully fired into action next year, is specifically aimed at increasing the supply of low-deposit mortgages as well as new housing.

Part of the initiative, which gets under way from January 2014 and will run for three years, involves the Government making guarantees to lenders which will be able to support £130 billion worth of low-deposit mortgages, to help home owners as well as first-time buyers.

Sylvia Waycot, editor at Moneyfacts.co.uk, said that "little has actually changed" for many people looking for their first mortgage. She said: "It might have all been very different had Funding for Lending been specific in ensuring lenders lent higher LTVs. But, as the main proviso is that they simply increase their lending books, we are unlikely to see much change from the conservative lending model and one opportunity to make a difference to this important market is lost."

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