Low deposit mortgage deals harder to find

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by Lin Freestone

Although the availability of houses at lower prices should in theory benefit first-time buyers (FTBs), the virtual disappearance of low-deposit mortgages is still making it difficult for FTBs to get on to the housing ladder.

Moneyfacts has produced figures that show that currently there are only 35 deals available to borrowers with a 5% deposit, and 66 deals available to those with a 10% deposit. A year ago, 1,126 deals specified a deposit of 5% or above.

Borrowers without large savings are more likely to be rejected by lenders who are wary of borrowers whom they consider to be at a greater risk of going into arrears. An increasing number of first-time buyers are having to top up their own savings with contributions from parents to bring their deposit to a high enough level, according to the Council of Mortgage Lenders.

The position is somewhat better for those able to offer bigger deposits, notably those with significant equity who are remortgaging. Deals which specify a minimum 15% deposit have increased to 228 now, from 198 a year ago. Deals requiring a 20% deposit have dropped slightly to 189, from 216 a year ago, and 25% deals to 421 from 449.

Most of the recently reintroduced tracker mortgage deals are being offered to borrowers with at least a 25% deposit, putting them out of reach of the majority of first-time buyers.

Tracker deals are considered to be one of the best options in the current climate. For borrowers able to offer a 40% deposit, HSBC is offering a tracker deal at just 0.99% above base rate. The addition of a £799 arrangement fee to the hefty deposit puts this well out of the reach of most young people wanting to buy their first home.