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First-time Buyer

Falling mortgage rates could save London first-time buyers over £500

Paloma Kubiak
Written By:
Paloma Kubiak
Posted:
Updated:
26/09/2016

First-time buyers could see up to £518 slashed from their mortgage bill each year, should lenders fully pass the Bank Base Rate cut onto customers, research suggests.

According to a report by Hamptons International, fledgling buyers in England and Wales could save up to £244 a year on mortgage payments if they benefit from the 0.25% reduction in interest rates.

A full transfer of the Bank of England’s rate reduction would bring the average first-time buyer mortgage of £159,381 down to a rate of 2.2%, slashing annual mortgage payments by 3%.

Experts have suggested that the Bank could choose to ease monetary policy even further by the end of this year, bringing interest rates to 0%. Hamptons’ research showed that this would reduce a first-time buyer’s annual repayments by £484 in England and Wales and by £1,028 in London.

Fionnuala Earley, director of residential research at Hamptons International, said: “The Bank of England’s rate cut and, more importantly, its new Term Funding Scheme, which incentivises banks to pass on the cuts and lend, should brighten the financial outlook for new homeowners. Hints that there could be another cut could be a bonus for new buyers. If the hint becomes a reality, new buyers nationally could see their mortgage bill reduced by almost £500 a year and £1,000 for those in the capital.”

And while deposits continue to be the main barrier for aspiring homeowners, conditions have improved slightly, Hamptons said. The time taken for an average young couple to save a deposit for their first home fell to five and a half years in the second quarter of this year, three months less than the same time last year.

However, in London, the average couple would still need to save an average of nine and a half years, while a single buyer would need 14 years.

Earley added: “While the rate cut does little for those still saving for their first home, there is some respite as the rate of house price growth is slowing and prices are expected to fall slightly in 2017. Providing incomes continue to rise, their ability to save will improve, meaning the dream of a new home could become a reality a little sooner.”