More than 35,000 first-time buyers were granted mortgages to get on to the property ladder in August, collectively borrowing the largest amount since July last year.
First-time buyer lending increased by 5.2%, year-on-year, at a time when the rest of the market has slowed down, the new data from UK Finance shows.
Here, we take a closer look at the trends for first-time buyers and explain how you can buy your first home with a small deposit.
First-time buyers borrow £6.1bn
In August, 35,500 mortgages were granted to first-time buyers, who borrowed a total of £6.1bn – the highest figure recorded since July 2017.
According to UK Finance, the average first-time buyer was aged 30, borrowed £145,495 and had a gross household income of £42,000.
The data shows, however, that many of those buying their first home did so with significant deposits, with the average first-time buyer mortgage granted at 85% loan-to-value (LTV).
Who took out mortgages in August?
Landlords seeking to remortgage
While the number of first-time buyers getting mortgages is on the up, the number of home movers taking out a loan dropped year-on-year, from 38,900 to 38,000.
The biggest change, however, was seen in the buy-to-let market, where there were signs that landlords were buying fewer properties.
In August, just 6,000 new buy-to-let purchase mortgages were granted, down from 6,900 in August 2017.
This drop came at a time where landlords were instead focusing on refinancing their portfolios, with the number of buy-to-let remortgages increasing to 13,800 from 13,000 a year earlier.
Is this good news for first-time buyers?
Broadly speaking, the number of approvals implies lenders are loosening the purse strings and first-time buyer affordability is improving.
As mentioned earlier, however, the average loan-to-value on a first-time buyer mortgage was 85%, meaning that buyers had a deposit of 15%.
Also, mortgages were granted at an average multiple of 3.69 times the buyer’s annual salary, up from 3.63 a year ago, but still well short of the 4 or 4.5 times income many first-time buyers would require.
Why are income multiples important?
As well as saving a big enough deposit, many first-time buyers can’t get on to the ladder as they can’t borrow enough to buy a home in their area.
Many mortgage lenders will theoretically offer loans at up to 4.5 times the borrower’s household income, but these aren’t necessarily very common, making up just 10.1% of the market, according to data from the Institute for Fiscal Studies.
Getting a 90% or 95% mortgage
On the bright side, if they can borrow enough to buy a home, first-time buyers with small deposits can benefit from good rates on 90% and 95% fixed-rate mortgages.
Indeed, Moneyfacts announced in September that the average rates on two- and five-year fixed-rate deals at 95% LTV had dropped to the lowest level since it started keeping records.
This was partly stimulated by the number of lenders offering 95% deals – and thus the number of deals available – increasing significantly.
95% mortgage average rates
|September 2017||September 2018|
|Two-year fixed-rate mortgage||4.18%||3.73%|
|Five-year fixed-rate mortgage||4.50%||4.08%|
Source: Moneyfacts, 24 September 2018.
But while 95% mortgages remain cheap, saving a little more can have a significant impact on how much interest you’ll pay.
Buyers with a 10% deposit can save as much as 0.8-0.9% on the initial rates available to those with 5% deposits.
90% mortgage average rates
|90% loan-to-value||95% loan-to-value|
|Two-year fixed-rate mortgage||2.81%||3.69%|
|Five-year fixed-rate mortgage||3.26%||4.07%|
Source: Moneyfacts, accessed 16 October 2018.
- Use our mortgage borrowing calculator to see how much you might be able to borrow.