New analysis from AmTrust International has found that falling mortgage rates have seen the average interest payments for first-time buyers fall over two years.
The average interest payments for first-time buyers have gone down from £11,327 during Q1 2015 to £10,019 in Q1 of 2016-representing a saving of £1,308.
Low interest rates
Record low interest rates during the first three months of this year has seen interest on a 95% LTV mortgage much more easy to maintain. These types of mortgage are usually used by first-time purchasers who are not able to save for a substantial deposit.
This will come as good news in comparison to Q1 2015, with would-be homeowners recently struggling with spiralling house prices and rising rents.
The table below indicates how two year interest repayments have reduced for a 95% LTV mortgage:
| Two year mortgage interest costs | Annual difference (£) | Annual difference (%) | ||
| 2013 | Q4 | £11,804 | – | – |
| 2014 | Q1 | £11,757 | – | – |
| Q2 | £12,491 | – | – | |
| Q3 | £13,091 | – | – | |
| Q4 | £12,816 | £1,012 | 9% | |
| 2015 | Q1 | £11,327 | -£429 | -4% |
| Q2 | £11,078 | -£1,413 | -11% | |
| Q3 | £10,787 | -£2,304 | -18% | |
| Q4 | £10,455 | -£2,361 | -18% | |
| 2016 | Q1 | £10,019 | -£1,308 | -12% |
Falling mortgage rates favour FTB’s over renters
Rising rents
With the costs of servicing the interest on a high LTV mortgage decreasing, the cost of renting of property continues to rise. During the past 12 months, the annual cost of rent has risen by £300 (3%) from an average of £9,188 in Q1 2015 to £9,488 during Q1 of 2016.
When the cost of renting is compared to the interest cost of a mortgage, renting is £4,415 or 87% more expensive. This difference is £111 more than the £4,305 extra it costs to rent in comparison to paying mortgage interest in the final quarter of 2015.
The cost of servicing a 95% LTV mortgage is also cheaper than it has been at any point since the Help to Buy mortgage guarantee was introduced at the end of 2013. The average interest rate of a high LTV mortgage has been dropping since this inception.
Growing gulf
Simon Crone, Commercial Director at AmTrust International, Mortgage and Special Risks, noted, ‘there is a large and rapidly growing gulf in the cost of housing that favours first-time buyers over renters-providing they can get a foot on the ladder. Record low interest rates mean that those lucky enough to buy their own property are benefitting from lower payments, while rental costs continue to rise, penalising those unable to save enough for a deposit. Such is the gap that homebuyers with 95% loans are able to make savings of more than £4,400 a year and reap the added benefit of paying off the capital of their mortgage.’[1]
‘However, many first-time buyers are unable to save deposit sums-largely as a result of high rental costs-and are therefore reliant on being able to access high LTV mortgages. It is therefore vital that we have a strong, sustainable supply of high loan to value lending to support those with smaller deposits who want to buy a home,’ he continued.[1]
[1] http://www.propertyreporter.co.uk/property/housing-costs-continue-to-favour-ftbs-over-renters.html