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Thu, 21 Feb 2013 15:21:29 GMT | By Damian Clarkson, senior editor, MSN Money

Cheap UK mortgages are meaningless to most buyers

Lowest rates aren’t being offered to first-time buyers – and they probably never will


First-time buyers [Image © Getty]

Great news this morning for borrowers as fixed mortgage rates have fallen to their lowest level in 20 years.

There has been a glut of deals hitting the market with rates below 2% - something that was unthinkable just a couple of years ago.

"'Fixed mortgage rates are dropping like stones," says Sylvia Waycot, editor of finance site Moneyfacts.

Ray Boulger, from independent broker John Charcol adds: "The mortgage market is open for business. Borrowers who, just a year ago, couldn't get a new mortgage should try again now."

So all this must be great news for first-time buyers, right? Fixed-rate deals offer the security of knowing your repayment costs won't rise, so are particularly suitable for those stepping onto the ladder.

Finally, after years of struggling to pay soaring rents, they can get a place of their own with one of these bargain mortgages.

Sadly, that's unlikely to happen. The vast majority of these buyers will have to pay a far, far higher rate - and that's assuming they qualify for a mortgage at all.

While there might be a load of great mortgage rates out there, first-time buyers will have to accept a far more expensive deal.

Risky customers pay more
That's because all those juicy headline rates are reserved for people who already own a sizeable chunk of their home or are able to put down a whopping great deposit.

Anyone who can only afford to put down a smaller lump sum (such as first-time buyers), must pay a dramatically higher rate.

Now, this is nothing new - the less you own of your house the riskier you are to banks, and they have always charged a higher rate to reflect this.

However, gap between the best deals and those offered to first-timers has grown significantly because banks have become extremely risk-averse.

Take a look at any mortgage best buy table. Those with a 40% deposit can borrow at a rate of just 1.89%, while anyone with a 10% deposit is looking at a rate of between 5% and 6%.

So while there might be a load of great mortgage rates out there, most first-time buyers will get nothing like that rate.

And it gets even worse...

Still, at least renting in the UK is affordable so they're able to set aside a lot of money each month. Oh wait...

A double-whammy
You see, the main reason why lenders are able to offer those headline rates is in a large part down to the government making £80 billion available to the banks on the promise that they then lend this money to homeowners and businesses at a low rate.

This glut of new funding has meant that banks no longer need to attract money through customer savings, and as a result savings rates have plummeted. Lower savings rates mean first-time buyers will have to save for longer to get a sizeable deposit.

So let me put that another way: the initiative that is making those tantalisingly cheap mortgages available is the same initiative making it more difficult to save for a home.

Still, at least renting in the UK is affordable so they're able to set aside a lot of money each month. Oh wait...

WHAT DO YOU THINK? SHOULD FIRST-TIME BUYERS HAVE ACCESS TO CHEAPER MORTGAGES OR ARE THEY JUST TOO HIGH RISK? ARE YOU STRUGGLING TO GET A MORTGAGE? LET US KNOW YOUR THOUGHTSIN THE COMMENTS SECTION BELOW OR USING #SOCIALVOICES ON TWITTER

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