Rise in young adults living at home

With recent figures revealing how rising house prices have outstripped wage increases over the past decade, the picture could look bleak to those hoping to get a foot on the property ladder.

But money experts say a new mortgage rate war, sparked by the launch of the Bank of England’s Funding for Lending scheme to provide an extra £80 billion worth of loans, could open up opportunities to first-time buyers and others to get the financial backing they need.

Staffordshire was in the spotlight in the National Housing Federation report, which revealed that nationally property prices had risen three times more than incomes between 2001 and 2011. The Moorlands was among the ten places where the financial gap is widest, with house prices up 94 per cent over the decade while wages rises trailed behind with just a 5 per cent increase.

With the federation saying homes are now “out of reach” of millions of potential buyers, figures from the Office of National Statistics seem to back up this view, revealing a 20 per cent rise in the number of young adults still living with their parents.

The figures show that in Stafford 5,000 20- to 34-year-olds still live at home, representing 28 per cent of people in that age group.

The ONS report pointed to rising property prices as a factor, saying: “The increase in the number of young adults living with parents over the past decade coincides with an increase in the average house price paid by first-time buyers, which rose by 40 per cent between 2002 and 2011. In addition the increasing ratio of house prices to the incomes of first time buyers is well documented. These factors may have reduced the ability of young adults to leave the parental home.”

Money experts at MoneySupermarket have been keeping close eye on the mortgage market, particularly since the launch of Funding for Lending at the start of this month.

The scheme makes funds available to banks and building societies to lend on to personal and commercial borrowers.

MoneySupermarket says this has led to a battle to produce the cheapest fixed rate deals in history, involving some of the biggest names on the high street.

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.