Borrowers with 5 per cent deposits now have more than 100 mortgages to choose from, as the mortgage market bounces back.
Over mortgage availability in general is back to 75 per cent of pre-pandemic levels, figures show, with rates as low as 1.27 per cent fixed for five years for those with bigger deposits to put down.
At the start of May there were 112 different 95 per cent mortgages on the market, more than three times as many as there were last month (34), according to analysis by Moneyfacts.
Are things looking up? More low-deposit mortgages on the market could mean it is easier for first-time buyers to climb on to the property ladder
This growth has been fuelled by the launch of the Government’s mortgage guarantee scheme, whereby it will underwrite loans to those with 5 per cent deposits on homes worth up to £600,000.
This was intended to encourage banks to lend to first-time buyers and other buyers with low equity, after they pulled many mortgage deals designed for these borrowers at the beginning of the pandemic.
Lloyds, Santander, Barclays, HSBC and NatWest are all offering the loans, while Virgin Money is set to begin offering them this month.
However, brokers are warning that those who take advantage will need an impeccable credit history, and many of the mortgages are not available to new-build buyers.
Best deals: 5% deposits
Atom Bank has a two-year fixed rate of 4.09 per cent with £500 cashback, or 3.94 per cent with no cashback
Monthly repayment based on a £250,000 home and a 25-year term: £1,265/£1,246 fee-free
Leeds Building Society has a two-year fixed rate of 3.8 per cent with a £499 fee
Monthly repayment: £1,228
Monmouthshire Building Society, Barclays, HSBC and Bank of Ireland all have a two-year fixed rate of 3.99 per cent with no fee
Monthly repayment: £1,252
Santander has a fee-free two-year tracker equivalent to the Bank of England base rate plus 3.89 per cent, meaning the interest rate is currently 3.99 per cent. Borrowers’ payments will rise or fall if the base rate does.
Monthly repayment: £1,252
Not all of the banks who have launched 5 per cent deposit mortgages are participating in the Government scheme, either.
Some merely saw the policy as a sign of confidence in the housing market and decided to launch their own products independently.
Moneyfacts told This is Money that currently, only 40 of the 5 per cent products on the market are under the Government scheme.
As well as the increase in 5 per cent deposit mortgages, there were also 41 new products launched for those with 10 per cent deposits in the last month, bringing the total to 481.
This time last year, there were just 100 available.
The proportion of the market where deals are available for those with deposits of 20 per cent or less is now 49 per cent, compared to 31 per cent this time last year.
Eleanor Williams, finance expert at Moneyfacts, said that while more mortgages on the market would help first-time buyers, rapidly increasing house prices were still an issue.
‘Higher LTV products returning and rates reducing couldn’t come at a better time as house prices continue to rocket upwards, but housing supply remains an obstacle for would-be buyers and this shortfall may well continue to drive up house prices,’ she said.
Best bigger deposit mortgage rates
20 per cent deposit
Allied Irish Bank is offering a two-year fix with a rate of 2.12 per cent and £750 cashback, and a five-year fixed rate of 2.22 per cent with £1,250 cashback
30 per cent deposit
Santander has a two-year fixed rate at 1.51 per cent with a £249 fee, or 1.39 per cent with a £749 fee
HSBC is offering a five-year fixed rate of 1.54 per cent with a £999 fee
40 per cent deposit
Natwest is offering a five-year fixed rate of 1.27 per cent with a £745 fee
*Costs based on a home valued at £400,000 and a mortgage on a 25-year term. Excluding discounted rates.
> Use This is Money and L&C’s mortgage tool to see the best rate you could apply for
Mortgage market back at 75% of pre-pandemic level
Looking at the mortgage market more widely, Moneyfacts has said the number of residential mortgages on offer rose for the seventh consecutive month in May.
This means mortgage availability is now back to 75 per cent of pre-pandemic levels. In March 2020 there were a total of 5,222 mortgage products on the market and today there are 3,927.
Across all loan-to-value brackets, the average two-year fixed rate dropped very slightly to 2.57 per cent while the average five-year fixed rate increased very slightly to 2.79 per cent.
Deals are sticking around for longer, too. Moneyfacts said that in April the average shelf-life of a mortgage deal increased by three days to 32, meaning borrowers now have more time to secure their chosen product.
While buyers with 5 and 10 per cent deposits are paying a significant interest rate premium, the availability of cheap borrowing across the second-stepper market is helping to fuel the current housing market boom.
Recent data from the Bank of England has shown that net mortgage borrowing in March reached the highest level ever recorded, beating the previous pre-financial crash high in late 2006.
Last week, HSBC revealed that it had handed out more mortgages in March than in any other month during its 40-year history.
Williams added: ‘The sense of optimism in the mortgage sector continues, with product choice continuing its climb back towards pre-pandemic levels.
‘After seven months of consecutive increases and 3,927 products now on offer, this represents a 53 per cent rise year-on-year and is the highest this total has been since March 2020 (5,222).
‘Borrowers considering a shorter-term fixed deal may be pleasantly surprised to see that the average overall two-year fixed rate for all loan-to-value ratios reduced for the first time in nine months, dropping by 0.01 per cent to 2.57 per cent.
‘However, the equivalent five-year fixed rate made a small rise of 0.02 per cent to 2.79 per cent, which may tie into the resurgence of higher LTV products, which traditionally carry higher rates.
‘It is important to remember that in general we remain in a relatively low interest rate environment, with rate reductions evident across many product brackets over the last month and some extremely competitive products on the market for eligible borrowers.’
She added that the average fee charged had reduced slightly in the last month, from £1,053 to £1,051. However, this is still substantially below the £985 average in May 2020.
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