Brexit hits first-time buyers hardest

Brexit hits first-time buyers hardest

First-time buyers were hit hardest in the three months following the UK's vote to leave the European Union, according to analysis by AmTrust and Moneyfacts.

The average interest rate gap between 75 per cent loan-to-value (LTV) and 95 per cent LTV mortgages reached a year-long high in September, according to the data.

Following the Bank of England’s decision to lower the bank base rate to 0.25 per cent in August, mortgage rates fell across the market. 

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However, the average cost of a top-level LTV loan has fallen at a much slower pace. The 0.05 per cent decline for a 95 per cent LTV mortgage in the last three months is a only third of the 0.15 per cent rate drop for 75 per cent LTV mortgages, leaving first-time buyers out of pocket. 

This created a 2.24 per cent gap in the interest rates available between the high and low, or 95/75 per cent, section of LTV borrowers in September. This is the widest the gap has been for nearly a year as first-time buyers suffer most after the referendum vote led to Brexit. 

As a result of low interest rates, the cost of borrowing continues to fall while being heavily favourable to the lower LTV market. 

The average monthly payment for a 95 per cent LTV mortgage reduced from £822 to £790 between September 2015 and September this year, the equivalent of a 4 per cent reduction, and a saving equal to £384 a year for first-time buyers.

However, those with larger deposits make bigger savings compared to a year ago.

For instance, for those with a 90 per cent LTV loan the typical cost of monthly repayments has fallen by £44 a month, equal to £528 a year.

Simon Crone, commercial director of AmTrust International mortgage and special risks, said: “The drop in the price of mortgages is a welcome development for borrowers but the worry is the EU vote has led to a market distortion at the expense of first-time buyers with small deposits.

"The early signs are that borrowers with small deposits may not be benefiting as much because of less competition as lenders reassess their risk appetite and rely upon those with larger deposits instead.

“It would be a great shame if the positive steps taken by the industry and the government to improve lending to first-time buyers, after a calamitous collapse in the wake of the financial crisis, was undone over the months ahead.

"The next few months will be a key period as lenders decide on their risk strategies in this sector and the help-to buy mortgage guarantee scheme comes to an end." 

Following the EU referendum vote the number of mortgage products available on the market has increased, while first-time buyer product choice stagnated. . 

There were 747 75 per cent LTV products available in October, the highest number since last November when the number reached 822.

This is an increase of 8 per cent from 689 in June – the largest increases here came in the 75-90 per cent LTV bracket, which meant that those who can save larger deposits benefited from the greatest choice of mortgage products in October for nearly 12 months.