Hurrah! More mortgages for smaller deposits

Borrowers with small deposits can now enjoy a greater choice of deals.

Since the onset of the credit crunch, it’s become increasingly difficult for borrowers with small deposits to get hold of a decent mortgage. The days of 100% loan-to-value mortgages are long gone.

However, while things remain tough for such borrowers, things are certainly improving.

The return of choice

New figures from financial information website Moneyfacts has shown that borrowers with smaller deposits are enjoying a greater range of choice when it comes to their new mortgage. The table below demonstrates the improving state of play for such borrowers.

Now clearly, lenders are still far more preoccupied with lending to borrowers with far larger deposits – the number of mortgages open to those borrowers with only a small amount of equity remains pretty small. However, there has clearly been a marked improvement in the number of deals to choose from, something that can only be a good thing for those first or second-time buyers.

New market-leaders

Of course, it’s all very well having more deals to choose from, but if the new entrants to higher loan-to-value lending are only offering mediocre deals, then borrowers are not really any better off – there’s just more rubbish deals to dismiss before settling on the mortgage to apply for.

Thankfully however, some lenders are not only launching new deals for those with little equity, but launching seriously competitive deals too.

Related blog post

• John Fitzsimons writes:

  Buy to let attractive to new landlords

  Guest blogger Alex Hammond of Kensington explains why the buy-to-let market looks attrative to new landlords, so long as they take a long-term approach.

  Read this post

For example, Santander recently launched an eye-catching deal for borrowers with just 10% as a deposit. The lender unveiled a two-year fixed rate mortgage at a rate of 5.45%, a rate than can actually be bettered by Newcastle BS (which offers a deal at 5.15%). However, one of the big selling points of the Santander deal is that it comes with just a £99 fee. From experience, when you’re struggling to get a decent-sized deposit together, the last thing you need to worry about is a massive fee as well.

What’s more, borrowers can get cashback of £250 upon completion, which will no doubt come in handy when it comes to furnishing their new home!

Now obviously, the rate still looks awfully high at 5.45%. And it is, when you consider that base rate is mired at 0.5%. But as I explained in Fixed mortgages reach highest rates in six-months, base rate plays very little part in deciding the role of fixed rates. And the simple fact is that rates are only going to start heading north from here.

Besides, historically a rate of 5.45% is extremely reasonable.

Personally though, I’d much prefer to sign up for a longer deal. That way I enjoy the rate for longer, cutting out the costs of remortgaging every two years, and giving me more time to build up my equity in the property. That way, when the time comes to remortgage, chances are I’ll have a better choice of cheaper mortgages to pick from.

Government intervention

However, there is a further ray of hope for first-time buyers hoping to take that first step onto the property ladder. Grant Shapps, the Housing Minister, has made a very public show of wanting to improve prospects for first-time buyers, which included calling a ‘first-time buyer summit’ a week ago in order to get all the interested parties together to try to work out what can be done.

Will he be able to make any difference? Perhaps not, but at least he is trying to make the housing market more accessible to all. Figures from the Council of Mortgage Lenders showed that the average first-time buyer deposit had jumped from £12,700 in Q1 2007 to £31,500 in Q3 2010.

As a proportion of the buyer’s income, that means a jump from 37% to a whopping 94% - essentially a year’s salary. If we want a housing market that young people can access, clearly something has to change.

Let us know what you think using the comments box below!

10 tremendous trackers

10 fabulous fixes

More: Snap up a brilliant 0% credit card | Find a better bank... today! | House prices now at 2003 levels

Use lovemoney.com's innovative new mortgage tool now to find the best mortgage for you online

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.