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First-time buyers: what's the best 95% mortgage deal?
First-time buyers may be tempted by a new mortgage deal offering £250 cashback and a fee-free application - but how does it really compare with the competition?
Here, we put the new five-year fixed-rate mortgage from Leek United Building Society through its paces, and offer advice on how to find the right deal.
Best five-year fixes at 95%
A new first-time buyer mortgage from Leek United comes with a low initial rate of 3.1%, no upfront fees, and the prospect of £250 cashback.
The deal, which was launched two weeks ago, has been described by Moneyfacts as a 'highly appealing' option for first-time buyers with small deposits.
But it's rate isn't the lowest in the market, even at 95% loan-to-value ratio.
Once we strip out mortgage products that require family assistance or are only available in specific postcodes, we can see that the Leek deal rate ranks fourth in the best-rate table.
It is, however, the only contender that combines no upfront fees and a cashback incentive.
| Lender | Initial rate | Revert rate | APRC | Fees | Cashback |
| Monmouthshire | 3.08% | 5.24% | 4.6% | None | None |
| Newcastle | 3.09% | 5.99% | 4.9% | £498 | None |
| TSB | 3.09% | 4.24% | 3.9% | £995 | £500 |
| Leek United | 3.1% | 5.69% | 4.7% | None | £250 |
Source: Moneyfacts: 18 June 2019. Five-year fixes for first-time buyers. Ranked by best introductory rate.
How much will I repay each month?
As the table above shows, there's barely any difference between the best introductory rates on five-year fixes at 95% loan-to-value.
If you were to take out a 95% mortgage on a £200,000 property, your monthly repayment would be around £909 with the Monmouthshire deal.
The other three deals listed above would cost you around £1 a month more.
How to compare five-year fixes
With nothing to choose between the best initial rates, the incentives on the Leek deal (no-fees and £250 cashback) stand out from the competition.
But what about some other key metrics? The TSB deal is the only one to formally set a maximum amount you can borrow (£500,000) - the other lenders say this depends on individual circumstances.
And while all four products allow borrowers to overpay, the Newcastle mortgage is the only one to allow payment holidays if you find yourself unable to make your mortgage payments.
Early repayment charges
One of the main issues around choosing a five-year fixed-rate deal is that they tend to come with high early-repayment charges (ERCs) if you want to pay back your loan early.
These are generally charged as a percentage of the loan, depending on how far into the deal you are.
That's certainly the case with these products, which come with ERCs of up to 5%.
The table below shows that the only difference in ERCs are on the Monmouthshire product, which has a 2% ERC in year five, compared with 1% elsewhere.
| Lender | Year one | Year two | Year three | Year four | Year five |
| Monmouthshire | 5% | 4% | 3% | 2% | 2% |
| Newcastle | 5% | 4% | 3% | 2% | 1% |
| TSB | 5% | 4% | 3% | 2% | 1% |
| Leek United | 5% | 4% | 3% | 2% | 1% |
Choosing between a two and five-year deal
Longer-term fixes of five years or more are becoming more popular, as first-time buyers and home movers look to lock in a great rate for longer.
They're not the right type of deal for everyone, however, with those pesky ERCs a potential stumbling block for buyers who might want to move home in a couple of years.
If this doesn't deter you from a long-term deal, you'll be pleased to hear that rates are becoming increasingly good value.
The chart below shows how the gap in cost between two and five-year fixes has narrowed significantly over the last few years, with the average five-year fix now costing less than 0.5% more than it's shorter-term equivalent.
Can you take out a 90% mortgage instead?
With 95% mortgages rates very attractive across the board, it's hard to imagine them becoming significantly cheaper any time soon.
So, if you're not looking to buy a home just yet, it can make sense to wait until you have a 10% deposit saved.
If you can do this, you could benefit from a much better rate and will have more options to choose from, as shown in the table below.
| LTV | Number of deals | Best rate |
| 90% | 170 | 2.21% (Yorkshire Building Society) |
| 95% | 109 | 3.08% (Monmouthshire) |
Source: Moneyfacts. 18 June 2019. Five-year fixed-rate mortgages available to first-time buyers.
Advice on mortgages and buying a house
If you're considering taking out a mortgage, we're here to help.
Before starting your search, you check out our guide on finding the best mortgage deals and compare how the biggest lenders rate for customer satisfaction.
Once you've found the right deal, get the lowdown on applying for a mortgage and follow the steps in our buying a house guide, which will take you right up to the moment you get the keys.
