Surge in low deposit mortgages for first time buyers

A surge in the number of low deposit mortgages is a “step in the right direction” for borrowers and first time buyers, according to a report.

The number of mortgages available at 90% and 95% loan to value (LTV) has reached the highest level in 17 years, financial information website Moneyfacts said.

Mortgage trends treasury data revealed on Monday that choice overall rose month-on-month, to 6,870 options, which is at their highest number since October 2007 (7,421).

This included low deposit mortgage 1,287 deals.

“The flourishing choice of low deposit mortgages will no doubt be welcomed by borrowers who are either looking to remortgage or are a first-time buyer,” Rachel Springall, finance expert at Moneyfacts, said.

“The Government has been clear that it wants lenders to do more to boost UK growth, and so a rise in product availability for aspiring homeowners is a healthy step in the right direction.”

She added: “However, there is still much more room for improvement, particularly as the choice of deals at 95% loan-to-value represents just 6% of all deals available to borrowers across fixed and variable mortgages.”

The data shows that fixed mortgage rates are also down year-on-year, and Ms Springall said the market is slowly seeing the average two-year fixed price getting closer to the five-year rates – with a rate gap of just 0.14%.

“Since October 2022, the average two-year fixed rate has been higher than the five-year rate. It seems an end to such inversion could be coming, but this does largely depend on how swap rates will move in the coming weeks,” Ms Springall said.

“These moves make it essential for borrowers not to delay finding a new deal, particularly if they are sitting on a revert rate.”

However, she said it’s vital borrowers seek advice to find the most appropriate package for them, and not just be swayed by the initial rate.

In general, Ms Springall said mortgage affordability for borrowers with small deposits has improved month-on-month, as there has been a drop in interest rates.

The average two-year fixed mortgage rate for borrowers with a 5% deposit at 5.81% is its lowest point in over two years.

Ms Springall said the reduction has been caused by a minimal movement to swap rates throughout March, which has ushered in a period of stability.

“There are numerous murmurings of a potential cut to surface in the coming months, but this could be delayed if inflation gets out of control,” she said.

“However, borrowers dissatisfied by a lack of cuts would be wise to keep in mind that lenders can reduce rates regardless of base rate moves. If the swap rate market plummets, this usually gives lenders a reason to slash their ranges in response.”