Banks withdraw nine in 10 low-deposit mortgages: what’s next for first-time buyers?


Nine in 10 mortgage deals for buyers with small deposits happen to be withdrawn in the past 8 weeks, but could better news be in route for first-time buyers?

Banks and building societies have dramatically cut their ranges of 90% and 95% loan-to-value mortgages because the start of coronavirus outbreak, with only a handful of deals now remaining for clients who have the smallest deposits.

Here, Which? explains whether it’s still easy to get a good type of loan and offers advice on if the reopening from the property market in England now could see more options return for first-time buyers.

Majority of low-deposit deals withdrawn

Data from Moneyfacts shows that the number of mortgage deals on the market fell from 5,222 at the start of March to two,566 this month, a drop of 51%.

Buyers with small deposits happen to be most affected by the cull, with 90% and 95% mortgages close to being wiped out, leaving only a handful of possibilities to many first-time buyers.

The tables below show how nine in 10 low deposit mortgages have been withdrawn within the space of 8 weeks.

90% loan-to-value

Type of deal Number of deals (March) Number of deals (May) Difference (%)
Two-year fix 294 24 -92%
Five-year fix 137 11 -92%

95% loan-to-value

Type of deal Number of deals (March) Number of deals (May) Difference (%)
Two-year fix 269 26 -90%
Five-year fix 142 11 -92%

Why have deal numbers fallen?

Several factors around the response to the COVID-19 pandemic have led to a large number of mortgage deals being withdrawn in the market.

First of, the government’s decision introducing three-month mortgage payment holidays saw banks being at a loss for calls from existing customers, so that they required to shift their priorities away from start up business.

This was followed by the government’s stay-at-home measures, which placed a hang on the property market and outlawed in-person mortgage valuations.

While lenders quickly adopted automated and ‘desktop’ valuations, most were reluctant to offer these on ‘higher-risk’ loans for those who have smaller deposits, meaning they just withdrew these deals instead.

Finally, two emergency cuts to the Bank of England base rate have led to the amount of tracker mortgages, which move in line using the base rate, dropping significantly.

What’s became of home loan rates?

The good news for individuals looking to purchase a home later this season is that home loan rates have fallen at just about all amounts of borrowing, regardless of the quantity of options reducing considerably.

Moneyfacts states that overall average rates are now at the smallest levels it has seen since it began keeping electronic records in 2007.

Again, however, it’s mixed news for all those seeking to borrow with a 5% or 10% deposit.

90% home loan rates have fallen combined with the remaining market, however the significant reduction in deals has been keenly felt at 95% loan-to-value (LTV), where rates have grown to be a little more expensive.

Will low-deposit deals return?

The picture may be worrying for first-time buyers with small deposits, but they may be reassured by deals beginning to re-appear in the coming weeks and months.

The government’s decision to reopen the home market in England the 2009 week will see lenders reinstate in-person mortgage valuations, that could bring low-deposit deals back to the marketplace.

Eleanor Williams, of Moneyfacts, says: ‘We're now beginning to see lenders relaunching products, plus some providers have eased the LTV caps they put in position at the start of the crisis.

‘Those attempting to begin the entire process of remortgaging or purchasing should speak to their lender or perhaps an independent, qualified adviser, to be able to lock in a minimal rate now or lay the groundwork to move forwards when the market rebounds’.

How to save a bigger mortgage deposit

If you’re saving to buy your first home, now is a great time to spring-clean your money and assess how much you can put towards a house deposit.

With the property market looking for an uncertain year and house prices likely to be more volatile than normal, you may be considering postponing a prospective move for some time, and carrying this out could allow you additional time in order to save a larger deposit.

The benefits of upgrading from the 5% deposit to some 10% deposit alone could be significant.

Rates on 90% mortgages are often around 0.7%-1% cheaper than 95% deals, a spot that may help you save a large amount in interest repayments in the long term.

Advice on saving for the first home

Whatever stage of saving you’re currently at, we’re here that will help you take full advantage of your hard earned money.

Our guide regarding how to save a home loan deposit explains the different ways you can put money away towards the first home, such as the benefits and drawbacks of Assistance to Buy Isas and lifelong Isas, which could improve your deposit by 25%.

You can also learn how much you may be able to borrow in our mortgage calculator so when time comes, check out our guides on trying to get a home loan and increasing your mortgage chances.

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