First-timers benefit as mortgage market thaws

Lending levels jumped by 9 per cent in March, the Council of Mortgage Lenders (CML) revealed yesterday, days after reporting a five-year high in first-time buyer activity.

And research commissioned by The Scotsman shows that the cost of a first-time buyer mortgage for first-timers has come down significantly in recent months as lenders have begun to relax restrictions.

First-time numbers in February were up 17 per cent year-on-year, the CML revealed, making it the strongest start to the year since 2008.

It said conditions in the housing market continue to show signs of improving, due partly to the funding for lending scheme (FLS) launched by the Bank of England last summer.

The FLS was introduced to give lenders access to cheaper borrowing – albeit to the detriment of savers by reducing lenders’ need to attract savings deposits.

Only borrowers with deposits or equity of 40 per cent or more benefited at first. However, mortgage rates for first-time buyers have fallen over the past few months, according to Moneyfacts figures produced for The Scotsman.

The average loan rate available to a first-time buyer with a 5 per cent deposit has dropped from 6.03 to 5.17 per cent since August. There are now 71 mortgages on the market at 95 per cent loan-to-value (LTV), up from 62 in August.

The improvement is even more marked for borrowers with 10 per cent deposits, with the average two-year fix down 5.48 to 4.61 per cent since August. First-time buyers have 337 loans at 90 per cent LTV from which to choose from, an increase of 77 over the same period.

But Rachel Springall, spokeswoman for Moneyfacts, said some of the mortgage reductions had been offset by large increases in mortgage fees.

“While it’s great to see rates falling, customers need to ensure they check the true cost of any deal, weighing up the upfront fees and incentives and not by rate alone,” said Springall.

In the Scottish capital, first-time buyers are “flooding back to the market”, one expert claimed. Robin Purdie, director of Mov8 Financial in Edinburgh, said: “The FLS definitely helps, but other factors include parental assistance with deposits, the fact that deposits have been a necessity again for more than five years now, and an increasingly realistic attitude to pricing among sellers.”

Rising rents have also prompted first-timers to review their ownership ambitions, provided they can build a sufficient deposit, Purdie added.

“I’d say that the outlook in Scotland is as good as anywhere else. And given it’s now being openly reported that things are looking up, confidence will continue to grow. “

Others are more cautious, however. Dr John Boyle, head of research at Rettie & Co, warns against reading too much into the recent improvement.

“The FLS has simply not been around long enough to jump to any steadfast conclusions as to its effectiveness,” said Boyle. “The rise in first-time buyers is encouraging, but it was on an upward trend anyway and is still low by historical standards.”

However, market activity has been more buoyant in recent weeks, said Boyle.

“The next three months should tell us if this means anything, as the market moves towards its traditional early summer peak,” he said.