First-Time Buyer Mortgages: Debunking Myths and Deciding Whether to Buy in 2023

Before we delve into the good news about buying a property in 2023, it’s important to keep in mind that interest rates can vary daily and are not available to everyone. The rates shown in the article, which were sampled from the market on 16th February, are for demonstration purposes only and do not constitute financial advice. To determine whether a mortgage product is right for you, its crucial to consider your own financial situation and consult with an expert mortgage advisor before making any decisions. While lower interest rates can be appealing, they may not always result in a better deal when considering the total cost of the mortgage, including set-up costs. Your expert mortgage advisor can provide valuable insight and guidance in navigating the options available to you.

Accessible 95% Mortgages for First-Time Buyers in 2023

Good news for first-time buyers in 2023: 95% mortgages are still available to help those with smaller deposits take their first step onto the property ladder. While not all lenders offer this type of mortgage, there are still options available. Skipton, Monmouthshire, and Principality are just a few of the lenders currently offering 2-year fixed-rate products with a 95% loan to value, with rates ranging from 4.9% to 5.6%.

Nationwide Building Society also offers a 5-year fixed-rate product for those buyers with 5% deposits which comes in at 4.99%. Skipton are offering a 95% mortgage for new builds through the governments New Homes Scheme, making new builds more accessible to first-time buyers than ever before. With the option of just a 5% deposit on an already discounted new build, this could be a great way for first-time buyers to climb onto the property ladder in 2023.

To find out which products may be accessible to you, consult with a mortgage advisor who can help you navigate the market and find the best deal for your personal financial situation.

Competitive Long-Term Fixed-Rate Mortgages for First-Time Buyers

First-time buyers who can afford the current repayments but are concerned about rising interest rates can take advantage of lenders offering competitive fixed rates over longer periods. With a longer-term fixed deal, first-time buyers can have more peace of mind knowing that their mortgage payments will remain consistent for a longer period.

Some lenders are offering fixed rates for up to 10 years, with only slightly higher interest rates than shorter-term fixed-rate products. The gap between 5-year fixed and 10-year fixed rates is decreasing, which could indicate lenders’ confidence in the long-term stability of the mortgage market. For example, customers with a 25% deposit can find 10-year fixed rates available for around 4.34%, while those with a 40% deposit can access under 4% at 3.99% through Virgin Money.

It’s recommended that first-time buyers speak to an expert mortgage advisor to find the best long-term fixed-rate mortgage option for their individual financial situation.

Cash-back Mortgages for First-Time Buyers: Ways to Use the Extra Funds

First-time buyers can still access cash-back deals with some mortgage products, providing a welcome financial boost for those looking to get onto the property ladder. This extra cash can be used in a number of ways, from repaying moving costs or essential repairs, to buying new furniture or appliances for their new home. Alternatively, the cash-back could simple be used to treat themselves to a well-deserved break or to build up their savings for future expenses. The possibilities are endless and entirely up to the individual buyer.

Why Having a Larger Deposit Can Benefit First-Time Buyers

Lenders tend to offer more favourable terms to first-time buyers who can make larger deposits. While this may seem unfair to those with smaller deposits, it’s important to remember that a larger deposit reduces the risk to the lender. As a result, if you can afford to put down more than a 5% deposit, you may be able to access lower interest rates. For instance, a 95% mortgage fixed for 5 years may have an interest rate of 4.99% whereas a 40% deposit fixed for 5 years will get you something like 3.93%.

Going Green: First-Time Buyers Can Save on Their Mortgage with Green Mortgages

Lenders are still offering green mortgages, which can be a great option for first-time buyers who want to save money and help the environment at the same time. Green mortgages typically offer slightly lower rates, as long as the property being purchased meets certain environmental and sustainability conditions. These conditions can vary from lender to lender, but generally include features such as energy-efficient insulation, renewable energy sources, and sustainable building materials. By choosing a green mortgage, first-time buyers can both save money and make a positive impact on the environment. To learn more about green mortgages and how they work, check out our Green Mortgages page.

Don’t Be Fooled: House Prices Are Still Increasing

There is a common misconception that the housing market is in decline, but this is not the case. In fact, house prices increased by 9.8% in the 12 months leading up to December 2022. While some may interpret this as a decline due to the decrease in percentage increase, it’s important to note that the market had increased by 10.6% in the previous 12 months leading up to November 2022. The slower rate of increase could indicate a more stable housing market, which is good news for first-time buyers. The chart below shows the increase of house prices since January 2005, and as you can see, prices have been steadily increasing.

Office for National Statistics - Average House Price, UK, January 2005 to December 2022.

Source: ONS (Office for National Statistics) House Price Index December 2022

Additionally, the chart below shows the fluctuation in “house price annual change,” which is sometimes misinterpreted as “the house market is dropping.” This misinterpretation leads to unwarranted panic, and it’s essential to understand that house prices are still increasing.

Office for National Statistics: Annual House Price Rates of Change for All Dwellings, UK, January 2006 to December 2022.

Source: ONS (Office for National Statistics) House Price Index December 2022

Why “Time in the Market” Matters More Than Timing the Housing Market

The principle of “time in the market beats timing the market” applies to property investment too. Instead of trying to guess the best time to enter the market, it’s more important to invest for the long-term. Owning a property means gradually paying off your mortgage and gaining from any increase on its value, resulting in a larger return on your investment over time.

However, owning a property is a long-term commitment. You’ll likely stay in it for many years, riding out any major fluctuations in the market. It might have been scary buying a property before the 2008 crash, but prices recovered almost entirely within a three-year period. Unless you had exceptional reasons for moving it would have been unlikely to need to sell during that period.

It’s also worth remembering that market downturns can be advantageous for buyers. For example, if you’re looking to upsize and your property is worth £300,000, a 10% market reduction would lower its value to £270,000. Suppose you were initially considering a property worth £500,000 before the downturn. You would have needed an additional £200,000 to complete the move, but post-crash, the property you were purchasing is worth £450,000, meaning you would only need an additional £180,000.

However, there are risks involved in a market downturn, such as negative equity. Negative equity occurs when the value of your property drops below the outstanding mortgage, which could leave you with a debt to repay eve after selling the property. Nevertheless, responsible lending guidelines have been implemented since the 2008 crash to protect borrowers from negative equity, stress-testing them before approving a mortgage to ensure they can manage higher rates and no become a mortgage prisoner.

If you’re considering buying or selling a property, it’s essential to seek professional advice and explore your options to ensue you’re making the best decision for your circumstances.

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1 thought on “First-Time Buyer Mortgages: Debunking Myths and Deciding Whether to Buy in 2023”

  1. Pingback: Should First Time Buyers Wait? A Guide to Making the Right Decision – Property Insider

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