Help for first-time buyers as 80 new 5% deposit mortgages were launched in the last month – but loans are still more expensive than they were before the pandemic
- Lenders launched 80 new mortgages with a 5% deposit in the last month
- They are targeting first-time buyers again after stepping back from stores in 2020
- Interest rates fall slightly with a typical two-year term of 3.88% and a five-year term of 4.07%
- Borrowers still only have half the options they had before the pandemic
Mortgage options for smaller deposit borrowers have improved dramatically after 80 new 5 percent deposit agreements were made available last month.
In May, more 5 percent deposit mortgages were launched than any other type of home loan as lenders increasingly seek to serve first-time buyers.
According to the financial information service Moneyfacts, there are now 192 products on the market, compared to just 31 in June 2020.
On the ladder: Better mortgage availability could help first-time home buyers
Many lenders stopped offering low-deposit deals at the start of the pandemic due to concerns about their own ability to process applications and the financial security of borrowers.
These are now returning, thanks in part to the government’s offer to take out 5 percent mortgages for lenders under a new guarantee scheme.
However, there are still far fewer offers than before the pandemic. In June 2019, for example, there were 404 options to choose from.
Interest rates have also fallen slightly, with the two-year fixed rates falling from 4.02 percent in May 2021 to 3.88 percent today and the five-year fixed rates falling from 4.17 percent to 4.07 percent.
However, they have not reached the lows of two years ago when a two-year fix at 3.25 percent and a five-year fix at 3.67 percent could be hedged.
Mortgage market: There are now over 4,200 building finance offers to choose from
For those with slightly larger cash pots, 11 new mortgages were launched in May with a 10 percent deposit, bringing the total number of stores to 492.
The average interest rate for these was 3.37 percent for a two-year rate and 3.42 percent for a five-year rate – again significantly higher than the 2.64 percent and 3.03 percent in June 2019.
Overall, the number of available mortgages has increased for eight consecutive months and is now at its highest level since the beginning of the pandemic.
Top 5% Depository Mortgages
Two year fix
Hinckley Building Society & Rugby offers a two year fixed rate mortgage at 3.39 percent with a fee of £ 999
Natwest has a two-year fixed rate of 3.65 percent with no fee
Virgin money offers a two year fix at 3.79 percent with £ 25 cashback
TSB has a two year fix at 3.94% with £ 500 cashback
Five year fix
Hinckley & Rugby BS has a 5 year rate of 3.69 percent with a £ 999 fee
Natwest offers a 5-year fix at 3.89 percent with no fee
Coventry Building Society has a 5 year fixation of 3.79 percent with a fee of £ 999
The West Brom offers a 5-year fix at 3.94 percent free of charge
Compare all the offers available with the This is Money mortgage service
Lenders have responded to the recent boom in the real estate market by offering tempting offers to attract borrowers – especially those with higher deposits who can access interest rates as low as 0.99 percent.
In total, there are currently more than 4,200 mortgage offers available, only 700 fewer than two years ago.
However, the deals don’t last long. The typical mortgage is available for just 28 days, a week less than two years ago.
Borrowers with higher deposits or equity currently enjoy significantly lower interest rates than those with less.
The average two-year fixed interest rate for someone with a 40 percent deposit or equity is now 1.61 percent, well below the 1.91 percent in June 2019.
For a five-year contract, the typical rate is 1.81 percent, again significantly lower than the 2.26 percent in 2019.
Eleanor Williams, Moneyfacts financial expert, said: “The drive of homeowners to buy more housing and meet the stamp duty vacation deadline has propelled UK property prices soaring, and while the demand for a dwindling supply of property continues to grow, there has been a significant increase in mortgage loans.
“Lenders are responding by improving product selection. There are now 316 more products on offer compared to the previous month, bringing overall mortgage availability below the top 4,000 products for the first time since the impact of the pandemic began over a year ago.
Along with the changes in the top LTV tiers, interest rate competition at the opposite end of the LTV spectrum has become evident, with a number of lenders launching flashy mortgage deals below 1% in the bottom LTV tiers.
“These record low rates are available to low-risk, high-equity borrowers, but whether that competition extends to higher LTV deals remains to be seen as we absorb the full economic impact of last year.”