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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

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.

  • You can get expert advice on your mortgage options by calling Which? Mortgage Advisers on 0800 197 8461 or filling out the form at the end of this article for a free call-back.

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.

Expert advice on your mortgage options

If you’re thinking of buying your first home, an impartial whole-of-market mortgage broker can help you find the right deal for you.

You can fill out the form below for a free call back from an adviser.

 

Your home may be repossessed if you do not keep up repayments on your mortgage.

Which? Limited is an Introducer Appointed Representative of Which? Financial Services Limited, which is authorised and regulated by the Financial Conduct Authority (FRN 527029). Which? Mortgage Advisers and Which? Money Compare are trading names of Which? Financial Services Limited.

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