New mortgage deals for small deposits!

If you only have a small deposit, there are still some decent mortgages to choose from.

This time a year ago things looked pretty tough for those hoping to buy but only boasting a small deposit. A year on, things have improved – but it may not last long...

A better choice

Not that long ago, you were hard pressed to find many mortgages available to borrowers with only small deposits. 100% loan-to-value mortgages were long gone, but 95% mortgages also disappeared, with only a small selection of 90% loan-to-value mortgages braving the harsh mortgage conditions.

Thankfully, as the market has steadily picked up over the past year, good borrowers with only small deposits have benefitted from a larger choice of deals.

According to financial information site Moneyfacts, the number of deals available to borrowers with a deposit of just 10% has jumped sharply over the past year. Indeed, while the lenders had been falling over themselves to compete for the business of borrowers with massive deposits, the situation is slowly changing, as the table below demonstrates.

Improving options

Of course, it’s great having more choice, but what’s really important is that the deals on offer are getting more competitive.

Thankfully that also appears to be the case, with a succession of lenders offering improving deals to buyers with small deposits. Santander recently launched a pretty competitive deal for first-time buyers with a deposit of only 15%, a three-year fixed rate at 5.69% and a fee of just £495.

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And Norwich & Peterborough this week has launched an attractive two-year fixed rate at 3.89% with a £995 fee for borrowers with a 15% deposit, so rates are certainly looking far better than they did when I bought in February 2009!

Why it may not last

The regulator, the FSA, has unveiled a whole raft of new rules regarding affordability that lenders will have to follow in the future. In a spectacular case of bolting the stable door once the horse is halfway to Ascot, the FSA has insisted all lenders use far tougher affordability tests, as I explained in Getting a mortgage is about to get tougher. Nothing wrong with that, except that lenders have already tightened up their lending criteria considerably over the past couple of years. That’s one of the reasons that gross mortgage lending has been at decade lows over the past couple of months.

These rules just go too far. According to the Council of Mortgage Lenders, if the new rules had been applied this year, almost half (45%) of first-time buyers who have got mortgages this year would have been turned down.

And it’s not just first-time buyers – even Grant Shapps, the Housing Minister, reckons he would struggle!

If these new rules do come in, then things are only going to get tougher for borrowers with small deposits, at precisely the time when they need the most help. So if you’re thinking of buying in the next year or so, it might be a good idea to get a move on!

Getting some guidance

The mortgage market moves pretty quickly, with new mortgages launched and old ones withdrawn at pretty short notice. And it can appear that there isn’t much difference between many lenders who have similar looking deals available - why go for this lender, rather than that one?

That’s where a broker’s advice is crucial. They can work out which lender is most likely to want your business, which lender’s criteria you best fit, as well as translating the jargon that lenders love to use. I’ve been writing about mortgages for years, but I used a broker for my mortgage and will again in the future. Our mortgage team are on hand to offer advice and help absolutely free. Head over to the mortgage centre, and you can do your own research or pick their brains via email, instant messenger, or over the phone.

15 great deals for smaller deposits

More: Top deals for loyal customers | Three people are to blame for this

At lovemoney.com, you can research all the best deals yourself using our online mortgage service, or speak directly to a whole-of-market, fee-free lovemoney.com broker. Call 0800 804 8045 or email mortgages@lovemoney.com for more help.

This article aims to give information, not advice. Always do your own research and/or seek out advice from an FSA-regulated broker (such as one of our brokers here at lovemoney.com), before acting on anything contained in this article. 

Finally, we tend to only give the initial rate of a deal in our articles, but any deal which lasts for a shorter period than your mortgage term may revert to the lender's standard variable rate or a tracker rate when the deal ends. Before you take out a deal, you should always try to find out from your lender what its standard variable rate is and how it will be determined in the future. Make sure you take all this information into account when comparing different deals.

Your home or property may be repossessed if you do not keep up repayments on your mortgage.