Discounted Mortgages Make Better Deals for First Time Home Buyers

By: MoneyFacts

First-time buyers looking for a mortgage may instinctively opt for a fixed rate deal to give them the peace of mind of knowing their monthly repayments won’t change even if base rate rises. However, research from moneyfacts.co.uk shows that first-time buyers may be significantly better off if they were to opt for a discounted variable rate deal instead, as the average fixed rate at 95% loan-to-value (LTV) is 0.82% more expensive than the current average discounted variable rate.

Charlotte Nelson, Finance Expert at moneyfacts.co.uk , said:

“Despite the array of options available to first-time buyers (FTBs), many tend to stick to fixed rates not just as they are the simplest to understand but also because they are a great way for usually cash-strapped FTBs to manage their money. However, as fixed rates for those at 95% LTV are on the rise, ignoring other options can be a costly mistake.

“Fixed rates for first-time buyers are going up, with the average two-year fixed rate at 95% LTV well above last year’s figure. In contrast, the average rate for discounted variable deals is still falling, and while the difference between the two rates was already clear to see in previous months, it has now risen to a whopping 0.82%.

“The low rates offered on discounted deals are a great way for FTBs to minimise their monthly repayments. In fact, borrowers opting for the average two-year discounted variable rate at 95% LTV instead of the average two-year fixed rate will be £89.25* a month or £1,071 a year better off.

“Discounted variable rates generally offer a discount on the lender’s Standard Variable Rate and due to this link, there is the potential for rates to rise if base rate rises. However, given the current difference between the two averages, FTBs could still find themselves better off even if base rate were to increase by 0.50%.

“It can be a difficult process, puzzling through the mortgage maze when you are new to the process, which is why any prospective first-time buyer unsure of what deal to opt for should seek advice from a financial adviser.”

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