First time lucky: the AAs new push to lure first time buyers
PUBLISHED: 13:00 02 June 2017
AA Mortgages launch new range with just 5 per cent deposit, £0 fees and cashback offers, so what should young buyers look out for?
This Friday, AA Mortgages are launching a new competitive mortgage range aimed at helping first time buyers climb onto the ladder. The new fixed rate mortgages include a range with just 5 per cent deposit payable, whilst selected mortgages include £0 fees and £0 standard valuation fees.
The two, three and five year fixed rate mortgages include five year mortgages at 90 and 95 per cent Loan-to-Value (LTV) rates with no fees. A £0 fee two year mortgage at 95 per cent LTV and a rate of 3.82 per cent also offers a free valuation and £400 cashback.
Michael Johnson, director of financial services said: “This competitive range aims to make mortgages simple and straightforward, with options for an array of borrowers - whether it’s those wanting to take their first step onto the property ladder or those simply wanting a better deal by re-mortgaging.”
According to Connells Survey & Valuation, remortgaging as a proportion of market activity hit a five year high in March relative to monthly averages. The figure represents 21 per cent of the valuations market, up from 15 percent in March 2016.
With the Bank of England announcing that mortgage approval rates dipped to a seven month low in May, banks are offering increasinglu competitive rates to keep buyers interested in a sluggish market strapped for cash.
Fixed rate mortgages are popular, since uncertainty around Brexit and the forthcoming election have made property seem more insecure, and sales have slumped.
Fixed rates avoid the uncertainty of fluctuating standard variable rates influencing repayment amounts each month.
However, fixed rates mean that in the case that the economy slumps and interest rates dip in response, a fixed rate carries the risk of obligation to pay more than current interest rates. The AA’s standard variable rate after the fixed term ends is 4.24per cent.
Colin Payne, associate director of Chapelgate Private Finance explained what first time buyers should be aware of when looking for a mortgage.
“The thing I would emphasise is that a mortgage is not just about the headline rate,” he advised. “There is a lot more to consider.”
“Many lenders offer free valuations to reduce the initial outlay, lenders sometimes offer cashback,” he said pointing to Halifax’s offer to first time buyers of £1000.00 cashback on some products.
“As for lender arrangement fees, some lenders reduce or waive these for first time buyers.”
Borrowers should be aware of lender arrangement fees, which can cost up to £995, or can pay a higher rate to take advantage of cashback on completion.
“It is easy for first time buyers to get carried away with the incentives on offer from lenders but this could be costing them significantly more in the long run!
“Equally for those larger loans it is generally more beneficial to opt for a lower rate whilst accepting their will be associated fees to pay,” he advised.
For a property in Crouch End for which the current value is £860,094 according to Zoopla.com, customers with a 25 year mortgage with a 95 per cent LTV rate and 3.99 per cent interest rate, monthly repayments would tot up to £4,308 with interest of £2,717 (assuming the rate of interest remains stable).
Granted, house prices are rather higher in our neck of the woods than elsewhere. For a first time buyer property on the market with Goldschmidt & Howland at £275,000 on Bassett Street, customers on the lowest interest rate mortgage at 1.43 per cent fixed for two years with an 85 per cent LTV rate would pay £927 per month with interest of £279 plus the £995 fee to make up for the lower interest rate.
At the other end of the scale, for a one bedroom flat in Holly Lodge Mansions on the market with Benham & Reeves for £390,000, customers on a five year fixed rate mortgage at 95 LTV rates and 3.99 per cent interest rates would pay £1,954 per month with interest of £1,232.
In north London, where average house prices are far beyond the valley of the affordable, it’s unlikely that the AA’s mortgage rates, generous though they might be, will make property more appealing to struggling generation renters.
In any case, all the figures should be added up to ensure the deal stacks up against the level being borrowed and the associated fees, interest rates and cashback offers.
“The key is determined by the level of borrowing required,” said Payne.