The number of mortgage deals for buyers with a 10 per cent deposit has continued to drop despite some of the country’s biggest lenders reintroducing deals, new figures reveal.
Lenders pulled over half of all mortgage deals in the wake of the pandemic but in recent weeks both Nationwide and Coventry Building Society began offering 90 per cent loan-to-value deals again.
Experts predicted that more lenders would follow suit in reintroducing these deals, leading to more choice and lower rates for first-time buyers.
But a recovery has so far failed to materialise as the number of deals for small deposit borrowers continued to drop over the course of July, figures from experts at Moneyfacts have revealed.
Lenders were quick to axe these deals as the pandemic hit with more low deposit mortgage deals being pulled in the first four months of lockdown than in the entire first year of the financial crisis.
Nationwide has since joined HSBC in offering these deals again, while Coventry Building Society has also offered them for limited periods.
This came as the Chancellor introduced his stamp duty cut and confidence in the market appeared to be back on the up.
Why have lenders pulled low deposit deals?
Lenders have mostly blamed staffing shortages forcing them to rein in new mortgage lending and focus on existing customers, with the majority of the country working from home and a wave of customers requesting mortgage holidays.
Lower deposit mortgages usually take more work to underwrite, as they present a higher risk to the lender.
As a result, if staffing problems at banks and building societies lead to deals being cut, it’s these deals that go first.
It’s also likely that lenders are less willing to lend to those who would have a smaller cushion against negative equity if house prices were to crash.
But despite this new figures from Moneyfacts have revealed that the number of deals available has continued to drop over the past month.
This will hit first-time buyers particularly hard as the group most likely to seek a mortgage with a small deposit.
For example, there were some 70 deals at 90 per cent loan-to-value at the start of the month compared to 67 today, according to Moneyfacts.
To put this into context, there were 780 deals of this kind before the lockdown was implemented in March.
This means that 92 per cent of deals have been cut over this timeframe.
Low-deposit 95 per cent loan-to-value deals have started to see a recovery, with 20 now available compared to 14 at the start of the July.
But the majority of these deals are specialist options – for example family assist mortgages – and won’t be available to most borrowers.
The number of 85 per cent deals has grown slightly over this time however, suggesting that lenders are more relaxed about lending to those who can scrape together a 15 per cent deposit.
Rates have climbed as deal numbers shrink
This crunch at the lower end of the loan-to-value scale, possibly coupled with lenders’ uneasiness about taking on too many risky customers, has seen rates rise for those at the bottom end of the market.
The average rate for a two-year 95 per cent loan-to-value mortgage now stands at 4.25 per cent compared to just 3.94 per cent at the start of July.
This means that if you managed to take a £100,000 mortgage taken over 25 years at the start of July you would be paying £17.21 less every month in interest or nearly £400 over the life of the deal than if you took one today.
Meanwhile the average two-year 90 per cent deals have seen average rates rise slightly to 3.05 per cent from 2.9 per cent over the same time period.
Moneyfacts’ Eleanor Williams said: ‘It remains an extremely fluid landscape in the higher loan-to-value tiers, and while it’s been fantastic to see Nationwide relaunch some 90 per cent products, we may well continue to see ebb and flow in availability whilst the providers who have been able to relaunch in these sectors balance coping with such high levels of borrower demand.’
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