First-time buyer mortgage flash sales: are they not going anywhere soon?

Low-deposit mortgages have returned, but blink and you’ll miss them.

A handful of banks have relaunched 90% mortgages previously few weeks, providing a lift for first-time buyers who’ve seen their options disappear because the start of coronavirus pandemic.

But there’s a catch. Lenders inundated with enquiries have been releasing deals in flash sales, which expire after 24, 48 or 72 hours, meaning it’s become a race to the finish line for eager applicants.

Here, Which? explains how flash sales work, whether they’re here to stay and the way to get ahead from the game with your mortgage application.

Why are lenders launching flash sales?

There are currently not many 90% or 95% mortgages available on the market, with lenders withdrawing nine from 10 low-deposit deals since March.

Banks that stood firm have been swamped by applications, leading to HSBC temporarily suspending its market-leading mortgages earlier this month.

Nationwide is now the only real major lender offering two and five-year fixed-rate mortgages for borrowers with a 10% deposit, but these deals include 25-year maximum terms and limits on gifted deposits.

This situation has led to banks offering 90% deals in flash sales. A week ago, TSB launched a new mortgage for just one day only, having a maximum overall limit on lending. This came off the back of Accord launching deals in 48-hour windows, and the Coventry Building Society in 72-hour bursts.

David Hollingworth associate director of communications at London &Country Mortgages says: 'Lenders which have offered 90% mortgages have faced a deluge of economic at any given time when capacity remains limited and processing is taking longer. The sheer lack of choice has meant applications continued coming, so lenders have sought different ways to try and acquire a appropriate volume'.

How do mortgage flash sales work?

On paper, a home loan flash sale appears like a bad idea – after all, the very last thing you want to do is rush into taking out financing for thousands and thousands of pounds – but there are safeguards in position.

First of all, the factors lenders are setting is stricter than ever before. Some will only lend on houses priced up to and including specific amount (e.g. lb300,000) and ban lending on flats and new-build homes completely. Others place a larger emphasis on employment or will cap how much you can borrow.

Secondly, these deals tend to only be available through lenders, and without a broker you might not hear about them whatsoever, as they tend to be announced just 24 or 48 hours before their launch.

By limiting applications to brokers, lenders can ensure there's a specialist acting on behalf of the applicant, ensuring they are able to adhere to the criteria and may pay the loan.

Are flash sales not going anywhere soon?

With economic uncertainty set to continue for the foreseeable future, we almost certainly haven’t seen the last of flash sales.

Eleanor Williams, finance expert at comparison website Moneyfacts, says: ‘Until more banks go back to offering low-deposit mortgages, it seems likely that we will continue to see an ebb and flow and maybe more lenders follows the example of launching limited-edition deals’.

Eleanor says first-time buyers should think about taking advice from a mortgage broker, who can navigate the marketplace to find the the most suitable deal, and be on the ball when goods are launched.

She says: ‘There is no guarantee just how long new deals will be readily available for, so speed and preparation could be the key to securing a mortgage’.

David Hollingworth says: 'What the larger loan-to-value market really needs is more lenders to rejoin and create a more stable range of products. More lenders offering 90% deals would help encourage others to participate and make momentum'.

Mortgages since COVID-19

Overall, the number of mortgages available to first-time buyers has crashed by 40% since the coronavirus outbreak, a figure that rises to 90% whenever we focus solely on 90% and 95% mortgages.

There are currently 1,609 fixed-rate deals available on the market for first-time buyers, but three-quarters of these (1,212) need a deposit of at least 20%.

The table below shows how mortgage numbers have fallen since March.

Options for first-time buyers

The insufficient deals open to first-time buyers mean many will face the prospect of putting their move on hold before the market improves, or attempting to spend less to get an 85% mortgage.

Saving a bigger deposit

David Hollingworth says: ‘It might be that some buyers can qualify for the current crop of 90% deals, but it is slim pickings. The inevitable question will be if they'd like to stretch to a bigger deposit and discover their method to pay 15% that will broaden their choice substantially and enhance the rates on offer.

‘However, that's often easier said than done when prices show little sign of dropping amidst the present demand.’

The Bank of Mum and Dad

Eleanor Williams says first-time buyers may be able to seek help from their parents, even if they're unable to gift or loan money towards a deposit.

She says borrowers could look into guarantor mortgages, where parents can earn interest on their savings while helping their offspring purchase a home, or joint borrower sole proprietor mortgages, where both parties use their income to buy the home, but only the offspring is listed around the deeds.

You can find out much more about guarantor mortgages in our recent article.