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.
But it's rate isn't the lowest in the market, even at 95% loan-to-value ratio.
It is, however, the only contender that combines no upfront fees and a cashback incentive.
|Lender||Initial rate||Revert rate||APRC||Fees||Cashback|
Source: Moneyfacts: 18 June 2019. Five-year fixes for first-time buyers. Ranked by best introductory rate.
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.
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.
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|
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.
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)|
Source: Moneyfacts. 18 June 2019. Five-year fixed-rate mortgages available to first-time buyers.
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