More fixed-rate mortgages for first-time buyers

With the Bank of England predicted to delay an interest rate rise until at least the autumn, the price of fixed-rate mortgages has fallen as lenders look to entice first-time buyers. So is now the time to buy?

According to financial observation company Moneyfacts, the average cost of a two-year fixed-rate mortgage has dropped to 4.41% from 4.5% in May. Costs have also fallen for three- and five-year fixed-rate deals as prospective buyers seek to fix their borrowing costs.

The number of mortgage products available to first-time buyers has also risen threefold from 62 in 2009 to 183 as of this month. The average rate on a first-time mortgage has fallen from 5.63% to 5.22%, further fuelling competition between lenders.

Among these products, 31 different loans are now available with just a 5% deposit – good news for first-time buyers. This is the largest number since December 2008.

Lenders that have lowered the cost of their fixed-rate mortgages include Nationwide, Natwest, Lloyds TSB and Halifax.

The reduction in lending rates has been helped along by a fall in so-called ‘swap rates’, which are tied to the base rate of interest, which is predicted to remain at its historic low until at least the final quarter of 2011.

The best rates, however, are still directly linked to the size of your deposit. If you can afford a 10% deposit, you can choose from among 244 mortgage products, or 545 if you put down 15% of your home’s value.

Moneyhighstreet says: “Lenders are responding to increased demand for fixed-rate loans and, with interest rates expected to rise later this year, getting a fixed-rate mortgage now could result in significant savings long-term.

“If you don’t have a large deposit to put down and are concerned about the rates associated with a bigger loan, take a look at Lloyds’ Lend a Hand range of mortgages. Under this scheme, a 5% deposit with get you the same rates as a 25% deposit, if a third-party backer places the other 20% into a Lloyds savings account.

“If you’re thinking about getting onto the property ladder or refinancing your home, the current market now offers the best opportunities for some time.”