TSB launches new mortgages for first time buyers
TSB has introduced new mortgages for first time buyers, making it easier for young people to get a mortgage - so long as they have a 15% deposit.
On Friday, the lender revealed a range of mortgages for first-time buyers which use an easier stress test than for home-movers. A stress test is a calculation used by mortgage lenders to work out a borrower’s ability to repay their loan.
Since 2017, the Bank of England has required lenders to stress-test borrowers at 3% above the standard variable rate of a mortgage — the rate borrowers pay once they reach the end of their fixed-rate deal.
The rule was introduced to ensure borrowers could cope if interest rates increased, even if they plan to move to a better deal once theirs ends. The Bank of England’s base rate, which impacts mortgage and savings rates, is at a record-low 0.1%, The Times reports.
The variable rate TSB mortgages revert to when the fixed-rate period ends is normally 3.59%. The bank’s new first-time buyer loans will use a cheaper rate, of 2.59 percentage points plus the base rate, giving a rate of 2.69% at present.
This means TSB will assess a first-time buyer’s ability to repay a mortgage charging 5.69%, instead of the 6.59% check for a home-mover. The full affordability calculation is worked out by subtracting monthly repayments from take-home pay, as well as including any other financial commitments.
The loans are available on two to five-year fixed-rate terms, through brokers or TSB, and can be used to buy houses or flats. However, buyers must have a minimum 15% deposit. A five-year deal for a first-time buyer with a 15% deposit costs 2.99% with a £995 fee, dropping to 1.59% with a 40% deposit.
Last week, the bank TSB pulled two-year fixed-rate deals for anyone with less than a 40% deposit due to high demand, but said this only applied to those who applied via a mortgage broker rather than with the bank directly.
Leeds Building Society offers a similar deal with two-year fixed-rate mortgages, for first-time buyers and home-movers, that stress-test according to a discounted rate for three years, rather than the standard variable rate. Similarly, Santander uses a stress test based on a variable rate that tracks the base rate.