They are in fact better value now than a year ago relative to the Standard Variable Rate (SVR). Conversely, five year variable rates are considerably less attractive today having seen a recent rise in monthly repayment costs.
Comparing the monthly repayments of two, three and five year best buys for a £100,000 mortgage shows that currently two year variable rates are £554.70, three year are £569.54 and five year are £589.85 per month. Towards the end of last year five year variable rates were more attractive than the three year rates but since then three year rate repayments have dropped significantly and repayments on five year rates have steadily risen.
The same players dominate the first time buyer best buy mortgage tables. Only eight companies feature in the tables over the last year.
Over the past year the repayments have crept up steadily (particularly for the five year variable mortgages) despite the fact that the bank of England base rate has remained the same since August last year. The only exception is with three year variable rates which have come down from a high of £587.51 between September and November.
The difference in repayments against SVR repayments has fluctuated a great deal over the last year. In March 2004 there was much less spread between the two year, three year and five year monthly repayments than is evident today. Two year variable rates have improved in attractiveness since last year but are slightly up from their best in October last year. On the other hand three and five year repayments are less attractive in comparison to the SVR than they were a year ago – the five year in particular. The main movement over the year was evident in the run up to Mortgage Regulation Day on 31 October 2004. This is likely to be due to the preparation required by lenders which resulted in a lower appetite to attract first time buyers due to time and servicing constraints.
Brian Murphy, Lending Manager at Mortgage Advice Bureau, commented: “This research illustrates clearly the changing trends of first time buyer mortgages. The three year rates became very expensive last year but are now returning to a more affordable level. Five year rates have shown the opposite trend and are gradually becoming less affordable.
“Two year discounted variable rates do tend to be the popular choice with borrowers and for good reason. They offer the lowest monthly repayments and have in fact improved in attractiveness since last year. Most first time buyers are predominantly motivated by cost. However, sometimes a fixed rate deal may suit their need to keep their budget stable in the short term.”
