Many starter homes out of reach for hard-working families

Estate agents across Gloucestershire and the rest of the country have welcomed the return of the "serious househunter", with many reporting buyers were looking to make a purchase before the summer holidays and major events such as the Olympic Games got under way.

The National Association of Estate Agents' most recent housing market report said the number of potential buyers registered with each branch rose to an average of 294 in June.

House sales remained stable, with an average of seven sales per branch during the month, the association reports, while agents also welcomed a slight rise in the number of first-time buyers, with a 19 per cent market share compared to 17 per cent in May. The Council for Mortgage Lenders also reported an increase in activity from first-time buyers, with £2.4 billion loaned to those purchasing their first home in June, the highest level since July 2010, with the exception of March when there was a concession on stamp duty.

But one estate agent with branches across South Gloucestershire and Bristol said this was not yet being reflected in the local property market, with many first-time buyers still turning to their parents to get on the first rung of the property ladder.

Douglas Wood, of Woods Estate Agents and president of the Bristol Property Agents Association, said: "We don't see many first-time buyers who aren't relying on the Bank of Mum and Dad.

"I'm not disputing the figures but we have not seen many first-time buyers without substantial help from their parents. The market is pretty flat - people are buying and we are still selling - but it's not really to first-time buyers, except a few who have had support with their deposit."

The data on first-time buyers was released as the National Housing Federation revealed the widening gap between house prices and earnings, with Gloucestershire properties increasing in value by 82 per cent over the past decade, while salaries have only risen by 22 per cent over the same period.

The federation has warned that this trend could be pushing prices “out of reach for hard-working families”, and has called for more affordable homes to be built across the country.

The deposit required to secure a loan for a Gloucestershire property has also risen by 354 per cent in 10 years, the federation reports with chief executive David Orr saying: “With the gap between income and house prices growing ever wider, people can often feel like they have to win the lottery to be able to buy in their local area.”

Since the launch of the Bank of England’s Funding for Lending scheme this month, which aims to make an extra £80 billion of loans available to personal and commercial borrowers, money experts at MoneySupermarket say a battle among lenders to produce the cheapest fixed rate deals in history has opened up new opportunities to first-time buyers and those coming to the end of their current deal.

Here is MoneySupermarket’s guide to what’s out there:

The latest action: HSBC threw down the gauntlet in the price war with its 2.99 per cent five-year fix, marking the cheapest mortgage rate over that timeframe in history. To benefit from the deal, applicants needed a 40 per cent deposit or that level in existing equity. The deal has since been withdrawn. HSBC also unveiled the lowest ever seven-year fix on record, priced at 3.99 per cent for the same down-payment.

Rival banking giant Santander soon retaliated by slashing the rate of its five-year fix down to an identical 2.99 per cent, also for borrowers with a 40 per cent deposit. However, to qualify applicants must have held a current account with the bank for at least 30 days at the time of application - or have a mortgage with the bank already and be moving home.

Unsurprisingly, both banks charge relatively hefty fees on these mortgages of £1,499 and £1,495 respectively.

Not to be outdone, NatWest then undercut both HSBC and Santander with a five-year fix of 2.95 per cent (also with a 40 per cent deposit) setting yet another new record. The fee on this deal, however, is an even heftier £2,495 but, according to Ray Boulger at mortgage broker John Charcol, it's worth paying if you are taking a larger mortgage.

He said: "NatWest's arrangement fee is well above average at £2,495, which is obviously to subsidise the rate, but even so this still represents fantastic value for mortgages of at least £100,000." He adds that, in addition, anyone remortgaging will qualify for a free valuation and free legal fees.

For loans of less than £100,000, it may be worth paying a higher rate and a lower fee. For example, Nationwide is offering a five-year fix priced at 3.39 per cent with a fee of only £499 if you are buying a new property - and just £299 if you are buying a home for the first time. For remortgagers, however, the fee is higher at £999.

Nevertheless, so long as your mortgage is not more than 60 per cent of the value of your home (even though this particular deal is available up to 70 per cent, it could offer better value than the sub-3 per cent rates simply because of the lower fee, according to Ray Boulger.

The other side of fixing: The downside to a fixed rate mortgage is that you will be tied as for as long as the deal lasts. You should be able to “port” your mortgage to a new property during this time (so long as the lender deems it adequate security for the loan), but if you want to sell up and pay off the debt, you will need to fork out early repayment charges, which can run into thousands of pounds.

So while a five-year fixed rate deal will provide security and a guaranteed low payment, on the flipside, it will cost you some flexibility.

Shorter-term fixed deals: There are plenty of shorter-term fixed rate deals that have come down in price too. Next to wade into the fixed rate mortgage war, for example, was Nationwide, which slashed the rate on its Flexclusive four-year fix down to a market-leading 2.89 per cent for loans up to 60 per cent of the property value.

The deal comes with a £900 product fee which is reduced to £400 if you are a first-time buyer. However, like Santander, the mortgage is only available to customers who hold the lender's FlexAccount as their main bank account.

If you are looking an even shorter two-year fix, prices in that camp have dropped too. Barclays has lowered its two-year fixed rate to 3.29 per cent with no application fee - taking the market-leading slot for loans that require a 30 per cent deposit.

Virgin Money has also launched a new two-year mortgage fixed at 2.99 per cent with a £995 product fee if you have a larger 40 per cent deposit. Alternatively you could opt for the 3.39 per cent deal and side-step the fee. Customers remortgaging from another lender will benefit from free standard legal services and a free basic valuation.

Lower deposits: Rates are falling on deals for borrowers with smaller deposits. Halifax has slashed the cost of its two-year fixes by 0.2 per cent and is now offering applicants with a 20 per cent deposit a rate of 4.34 per cent if they go to direct to the branch (rates from intermediaries are higher), while borrowers with a 15 per cent deposit will pay a fixed rate of 4.64 per cent for two years.

Both deals come with a £995 product fee - though first-time buyers won't need to pay this and will even receive £1,000 cashback on completion of the deal.

HSBC has also cut its two-year fixed rate deal by 0.2 per cent down to 4.29 per cent for borrowers with a 10 per cent deposit - and reduced its five-year fixes by as much as 0.5 per cent.

Even if you can only lay your hands on a 5 per cent deposit, fixed rates are still cheaper than they were. Santander has cut its three-year fixed rate deal at this borrowing level down to a market-leading 4.99 per cent, while its five and seven-year deals have been slashed to 5.29 per cent in return for the same deposit. Both come with a low fee of £99 plus free valuation and £250 cashback on completion.

The mortgages, which are available only through Abbey Intermediaries and not on price comparison websites, are part of the Government's NewBuy scheme which is designed to help first-time buyers get on the housing ladder.

The difference of just a few percentage points on a loan big enough to buy a house can make a world of difference to your pocket so, even though fixed rates are tumbling, it's still important to do your homework. MoneySupermarket's mortgage channel can help you shop around and make sure you are up-to-date.

Please note: Any rates or deals mentioned in this article were available at the time of writing.