The United Kingdom, more than its Western European neighbours, seems obsessed with home ownership. While most young Germans tend to rent their homes, Britons seek the security that buying their own property offers.
Unless you are fortunate to benefit from a sizeable inheritance or are blessed with an extremely wealthy family, the only route to home ownership is to take out a mortgage. Where to find the best mortgage deals can be something of a conundrum; there are various types of mortgages, each offering its own benefits in interest rates, flexibility, method of repayment, and so on.
First-time buyers face an increasingly difficult task in getting on to the property ladder. The worldwide credit crunch leading to recession has its origins in lenders offering loans to customers who subsequently were unable to repay which led to many defaulting on their loans.
Financial institutions, having been bailed out by governments, are now reluctant to offer mortgages on such relaxed terms as had become the norm. The resulting tougher conditions attached to loans, including, in some cases, deposits of up to 40% of the value of the property purchase, have made it even more difficult for first-time buyers.
With fewer potential house buyers, the property market has become stagnant in most areas in the UK, London excepted. This in turn has led to some of the lowest ever repayment interest rates being offered on mortgages. With no upturn forecast in the near future, interest rates are likely to remain low for quite a while.
The scene is set for first-time buyers to patiently save as much as they can towards a deposit, then take advantage of the low interest mortgage rates.
So where are the best mortgage deals to be had?
According to moneysupermarket.com, HSBC’s Tracker offers the best value as at the time of writing. The variable rate of 2.14% above the base rate is available throughout the term of the mortgage. There is a management fee of £999 and a deposit of 40% of the property purchase value is required. One major selling point for this product is that should you repay your mortgage before the scheduled term, there is no Early Repayment Charge.
Other mortgages recommended by moneysupermarket.com include tracker and discount products from the Post Office, Yorkshire Building Society and Santander, among others. Apart from comparing the Initial Rate of interest, borrowers should take into consideration the following conditions in order to make educated comparisons:
• The length of time for which the Initial Rate is offered. Most lenders will offer the Initial Rate for up to two years.
• The management fee which can vary from less than £500 to in excess of £2,000.
• The overall cost of the mortgage. The APR should give you an idea of the true rate of interest, including all costs throughout the mortgage term. Currently APR rates in the top listed mortgages in the moneysupermarket.com comparison table vary between 2.8% and 5.5%.
• The level of deposit required, which is generally between 25% and 40% of the purchase price. A lower deposit will typically lead to a higher APR over the term of the policy. One needs to consider this when choosing between products because what initially seems a good deal will invariably cost more in the long run.
For those who cannot realistically afford such high deposits, the UK Government has introduced a scheme, in conjunction with house builders and lenders. Called Newbuy, the scheme offers house buyers mortgages with deposits as low as 5% on newly built properties.
Newbuy is designed to help first time buyers, as well as existing home owners wishing to move. Currently a number of financial institutions, including NatWest, Santander, Halifax and Nationwide, offer Newbuy mortgages.
Compared with the mortgages previously outlined, because Newbuy offers loans of up to 95% of the property value, the repayment rates are generally higher. Rates tend to be around the 5% mark. Management fees vary between £99 and £499.
The author is not a financial adviser and is not qualified to offer recommendations for any specific mortgage scheme. This article is to be seen as a guide to what kinds of mortgages are available. Should you wish to look further into taking out a mortgage, it is recommended that you seek the services of an Independent Financial Adviser or qualified mortgage broker.
You might like to visit your bank or building society as a first step. It could pay you, however, to shop around for the best mortgage deals. Although mortgages may be more difficult to come by than in recent years, it is most definitely a buyer’s market.