First-time homebuyers returning to the marketplace signal an increase in confidence, according to one mortgage fixer. However, at the same time some borrowers are feeling the financial squeeze and opting for ‘interest only’ mortgages.

Mortgages Direct, the financial subsidiary of Spicerhaart said this week that first-time buyers are continuing to return to the market. They are seeing first-time buyer levels at 46% in February, increased from 45% in January.

However buyers are evidently feeling the squeeze on their finances with 32% opting for interest only mortgages in February from 25% in January, this is the highest level since the survey began.

% of first time buyers

Peter Gladdy, director of Mortgages Direct commented: "The high level of first time buyers indicates that confidence has returned after a short period of wild speculation that a housing market crash is imminent."

"However after a decade of strong house price growth and interest rates rising in the last two years, buyers are struggling not only to afford to buy a home but also repay their mortgages. As a result more borrowers are opting for interest only mortgages instead."

"However this trend is worrying and not advisable unless a comprehensive repayment method is in place."

The index also reveals that demand for two year fixed rate mortgages has soared in the past year with 64% of borrowers opting for a fixed rate mortgage from 45% this time last year.

"The increase in borrowers opting for fixed rate mortgages indicates that borrowers are now incredibly rate sensitive. They are opting for the lowest deal available and two year fixed rates have been among the most competitive," said Gladdy.