Prior to last year, the level of deposit required tended to be in the region of, at least, 15% to 25% of the property’s value and while there has been an improvement in the number of high LTV mortgages available, first-timers are still having to save (or be gifted) large sums of money.
The latest statistics from the Bank of England for Q2 this year reveal a slow and steady increase in the amount of lending to first-time buyers – up to 22.1% of all lending this quarter compared to just 16.3% for the same quarter three years ago.
But not only do first-time buyers feel the pressure in terms of saving for a deposit, once ‘through the gate’ to purchasing their first home those who have only managed to put down 10% are also left paying significantly more for their monthly mortgage payment than those who are fortunate to have a bigger deposit available.
Research conducted by Genworth found comparing the average cost of a two-year fixed rate mortgage at both 75% and 95% LTV in July 2014, we showed that borrowers effectively paid a rate of 15.8% on the balance between 75% and 95% compared to 2.5% up to 75% LTV.
This means that an average first-time buyer purchasing a home valued at £147k would pay £496 per month on a 75% LTV mortgage and a significantly greater £843 per month on a 95% LTV product.
This is nearly double the money required at a lower LTV – assuming both borrowers were assessed as being able to pay up to 30% of their net income on their mortgage payments, the 75% LTV borrower would need a gross salary of £24.8k, while his or her 95% LTV counterpart would need £45.8k.
It does not take a genius to work out that the number of borrowers wanting a 5% deposit product are going to be heavily restricted because of this annual salary requirement.
Simon Crone is president of commercial mortgage insurance, Europe at Genworth
