July 28th, 2017
Many contractors, freelancers, and independent professionals often depend upon 90% LTVs in order to purchase their own property.
But the availability of low deposit options is dwindling and those that are still available are going up in price for first-time buyer contractors.
Over the past 12 months following the Brexit referendum, inflation has risen to a four year high of 2.9%. This is in stark contrast to May 2016, when inflation was at 0.3%. With this rise in inflation, the income of borrowers has decreased whilst the probability of them defaulting has in increased.
This has had a direct impact on low deposit loans, with typical 95% loan to value mortgage rates rising considerably this year. Where a 95% LTV 2 year fixed cost 3.89% in January, by July, it had increased by 0.35% to 4.24%. This increase is also reflected in 95% LTV 5-year fixes, which have risen by 0.18%, from 4.37% in January to 4.55% in July.
And, with the Bank of England predicting that inflation will continue to increase, along with growing uncertainty about the future of the UK economy, this trend looks set to continue.
However, for contractors with higher deposits, mortgage rates have started to fall. The cost of a 5 year fixed 70% LTV is now 2% lower than it was at the beginning of April 2017. Based on the current rate of 2.04%, this 2% rate reduction equates to an annual saving of £144 over the past three months, or £450 compared to this time last year, based on a £150,000 mortgage.
This means that contractors with larger deposits are in a better position than those with a low deposit because lenders see them as less of risk.
So, for example, a five year fixed rate mortgage with contractor friendly lender Metro Bank is just 1.79% for those with a 30% deposit. In comparison, a 5 year fixed rate for a 10% deposit is 2.64%. With a difference in the rate of 0.85%, that equates to £212 each month based on a loan of £300,000.
So will this result in a reduction in the number of first-time buyer contractors, at least in the short term, as first-time buyers try to save higher deposits before investing?
It all comes down to a balancing act between taking the time to save the optimal deposit and risking a potential increase in interest rates, or worsening credit conditions that will cause mortgage rates to increase. First-time buyers must now decide whether to stick or twist.
Media Contact: Sarah Middleton, Public Relations Manager
Tel: 01489 555 080