First-time buyers who are looking for their first home and have just a 5% deposit will be disappointed to find the choice of mortgage deals available to them has fallen.
On a more positive note, other high loan-to-value mortgages, i.e. requiring a 10% or 15% deposit, are slowly coming back to the market.
Borrowers with a 5% deposit may now be considering whether to double their deposit to find cheaper deals and greater choice.
The latest research from Moneyfacts.co.uk reveals that despite a gradual rise in the number of fixed mortgages of between 85% and 90% loan-to-value (LTV), the number of deals at 95% loan-to-value has fallen since last month.
|Residential mortgage market analysis – Number of products available|
|Two-year fixed rate (85% LTV)||87||116||29|
|Two-year fixed rate (90% LTV)||24||55||31|
|Two-year fixed rate (95% LTV)||11||6||-5|
|Five-year fixed rate (85% LTV)||83||116||33|
|Five-year fixed rate (90% LTV)||26||51||25|
|Five-year fixed rate (95% LTV)||11||9||-2|
|Two-year fixed rate (all LTV’s)||2.09%||2.02%||-0.07%|
|Two-year fixed rate (85% LTV)||2.33%||2.09%||-0.24%|
|Two-year fixed rate (90% LTV)||2.40%||2.30%||-0.10%|
|Two-year fixed rate (95% LTV)||3.36%||3.28%||-0.08%|
|Five-year fixed rate (all LTV’s)||2.35%||2.26%||-0.09%|
|Five-year fixed rate (85% LTV)||2.63%||2.32%||-0.31%|
|Five-year fixed rate (90% LTV)||2.65%||2.57%||-0.08%|
|Five-year fixed rate (95% LTV)||3.62%||3.48%||-0.14%|
|Source: Moneyfacts.co.uk. Data correct as at 1st day of the month
Rachel Springall, Finance Expert at Moneyfacts.co.uk, said: “While it is encouraging to see some higher loan-to-value deals return to the market at 85% and 90% loan-to-value, it has so far been slow and steady progress.
“At the same time, borrowers who have only mustered a 5% deposit to get onto the property ladder will find very few fixed rate mortgage deals on the market available to them.
“Borrowers may need to wait a little longer for providers to accommodate them if they only have 5% deposit to buy their first home, as there has been no improvement to growth in choice of deals available to them over the past month, it has in fact shrunk.
“Today there are just six deals for borrowers looking for a two-year or nine deals on a five-year fixed rate mortgage at 95% loan-to-value, down from 22 in both areas combined a month ago and 105 in April.
“As lockdown eases, individuals return to work and attempt to discover normality again – they may well be starting to house-hunt. However, it may be a bit premature for them to buy a home imminently and instead they may wish to wait for more competition to return to the mortgage market for low deposit deals.
“Alternatively, if borrowers have a bit of extra disposable income and the ability, they would be wise to raise their deposit to 10% to find a greater choice of deals for a lower cost.
“Whatever borrowers decide to do, it is imperative they seek independent financial advice before they commit to a mortgage deal. It is hoped that the mortgage market will adapt once more to accommodate borrowers with small deposits, but it will not happen overnight.”
Why are there less 95% LTV mortgages available?
Danny Belton, head of lender relationships at Legal & General Mortgage Club, explains the situation: “The disruption caused by coronavirus and the subsequent lockdown clearly affected the availability of high loan-to-value (LTV) products on the mortgage market.
“Lenders were not able to conduct physical valuations of properties during the lockdown, and many firms took responsible action to limit or temporarily withdraw higher LTV options from their propositions.
“With the housing market now back open and demand returning, we are starting to see lenders return to higher LTVs, in some instances up to 90%. There is a desire from lenders to move back to even higher LTVs, but 90% is likely to remain the new normal for the time being.
“In part, this is due to ongoing uncertainty around the impact of Covid-19, but more so the fact that lenders are still rightly focused on supporting existing customers and managing their operational capacity.
“Just like other businesses, lenders have had to adapt their workforces to work largely from home, while they continue to manage thousands of enquiries about payment holidays – as many as one in six have now opted to defer their mortgage repayments.
“For any borrowers with smaller deposits that are looking to step onto the housing ladder, it’s important that they seek advice from an independent mortgage adviser.
“Though there still 95% products available on the market, some lenders, particularly building societies, are offering alternative options that could be more suitable. This includes family-assist schemes, where parents or other relatives act as a guarantor or even the Help to Buy scheme.
“By speaking to an independent adviser, borrowers can get a better understanding of the full range of options available to them, which is particularly important given the smaller range of 95% mortgages currently available.”