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First-time buyer mortgage lending on the up – can you buy a home with a small deposit?

35,000 borrowers were granted a mortgage on their first home in August

First-time buyer mortgage lending on the up – can you buy a home with a small deposit?

More than 35,000 first-time buyers were granted mortgages to get on to the property ladder in August, collectively borrowing the largest amount since July last year. 

First-time buyer lending increased by 5.2%, year-on-year, at a time when the rest of the market has slowed down, the new data from UK Finance shows.

Here, we take a closer look at the trends for first-time buyers and explain how you can buy your first home with a small deposit.


First-time buyers borrow £6.1bn

In August, 35,500 mortgages were granted to first-time buyers, who borrowed a total of £6.1bn – the highest figure recorded since July 2017.

According to UK Finance, the average first-time buyer was aged 30, borrowed £145,495 and had a gross household income of £42,000.

The data shows, however, that many of those buying their first home did so with significant deposits, with the average first-time buyer mortgage granted at 85% loan-to-value (LTV).

Who took out mortgages in August?

Landlords seeking to remortgage

While the number of first-time buyers getting mortgages is on the up, the number of home movers taking out a loan dropped year-on-year, from 38,900 to 38,000.

The biggest change, however, was seen in the buy-to-let market, where there were signs that landlords were buying fewer properties.

In August, just 6,000 new buy-to-let purchase mortgages were granted, down from 6,900 in August 2017.

This drop came at a time where landlords were instead focusing on refinancing their portfolios, with the number of buy-to-let remortgages increasing to 13,800 from 13,000 a year earlier.

Is this good news for first-time buyers?

Broadly speaking, the number of approvals implies lenders are loosening the purse strings and first-time buyer affordability is improving.

As mentioned earlier, however, the average loan-to-value on a first-time buyer mortgage was 85%, meaning that buyers had a deposit of 15%.

Also, mortgages were granted at an average multiple of 3.69 times the buyer’s annual salary, up from 3.63 a year ago, but still well short of the 4 or 4.5 times income many first-time buyers would require.

Why are income multiples important?

As well as saving a big enough deposit, many first-time buyers can’t get on to the ladder as they can’t borrow enough to buy a home in their area.

Many mortgage lenders will theoretically offer loans at up to 4.5 times the borrower’s household income, but these aren’t necessarily very common, making up just 10.1% of the market, according to data from the Institute for Fiscal Studies.

Getting a 90% or 95% mortgage

On the bright side, if they can borrow enough to buy a home, first-time buyers with small deposits can benefit from good rates on 90% and 95% fixed-rate mortgages.

Indeed, Moneyfacts announced in September that the average rates on two- and five-year fixed-rate deals at 95% LTV had dropped to the lowest level since it started keeping records.

This was partly stimulated by the number of lenders offering 95% deals – and thus the number of deals available – increasing significantly.

95% mortgage average rates

September 2017 September 2018
Two-year fixed-rate mortgage 4.18% 3.73%
Five-year fixed-rate mortgage 4.50% 4.08%

Source: Moneyfacts, 24 September 2018.

But while 95% mortgages remain cheap, saving a little more can have a significant impact on how much interest you’ll pay.

Buyers with a 10% deposit can save as much as 0.8-0.9% on the initial rates available to those with 5% deposits.

90% mortgage average rates

90% loan-to-value 95% loan-to-value
Two-year fixed-rate mortgage 2.81% 3.69%
Five-year fixed-rate mortgage 3.26% 4.07%

Source: Moneyfacts, accessed 16 October 2018.

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