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Mortgage costs fall by £1,300 for first-time buyers

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Written by: Christina Hoghton
07/07/2016
The fall in interest rates has led to huge cuts in mortgage repayments for first-time buyers with small deposits.

Average mortgage interest payments for first-time buyers over two years fell from £11,327 in the first quarter of 2015 to £10,019 this year (Q1).

This represents a saving of £1,308, according to research from AmTrust International, Mortgage and Special Risks, and it’s down to falling mortgage rates in recent months.

Plus, for once, those with a small deposit are benefitting. Record low interest rates mean it hasn’t been this cheap to service the interest on a 95% loan to value (LTV) mortgage since 2013 following the financial crisis and recession.

Paying down debt

As the interest costs of paying off a mortgage have fallen, this means the amount spent by high loan-to-value borrowers – those with a 5% deposit – on capital repayments has increased by 18% year-on-year, helping them to build equity in their home.

This helps first-time buyers to pay off the capital of their mortgage faster, reducing the total amount of interest paid over the lifetime of their mortgage.

Buying costs down, rent costs up

However, while the cost of buying falls, renting costs have risen, representing the largest gap since the financial crisis.

Over the last year, the cost of a year’s rent has increased by £300 (or 3%) from an average of £9,188 in the first quarter of 2015 to £9,488 in the same period this year.

The hike makes it harder for hopeful buyers who want to save a deposit while covering the cost of rent.

When you compare the annual cost of renting to the interest cost of a mortgage, which is the part of the mortgage payment that does not go towards the owner building up their equity share in the property, renting is £4,415, or 87%, more expensive.

Simon Crone, commercial director at AmTrust International, said: “There is a large and rapidly growing gulf in the cost of housing that favours first-time buyers over renters – providing they can get a foot on the ladder.

Record low interest rates mean that those lucky enough to buy their own property are benefitting from lower payments, while rental costs continue to rise, penalising those unable to save enough for a deposit.”

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