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17 May 2020

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

Only a handful of 90% and 95% deals remain, as property market reopens in England

Nine in 10 mortgage deals for buyers with small deposits have been withdrawn in the past two months, but could better news be on the way for first-time buyers?

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

Here, Which? explains whether it's still possible to get a good mortgage rate and offers advice on whether the reopening of the property market in England this week could see more options return for first-time buyers.

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Majority of low-deposit deals withdrawn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 2,566 this month, a drop of 51%.

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

The tables below show how nine in 10 low deposit mortgages have been withdrawn in the space of two months.

90% loan-to-value

Type of dealNumber of deals (March)Number of deals (May)Difference (%)
Two-year fix29424-92%
Five-year fix13711-92%

95% loan-to-value

Type of dealNumber of deals (March)Number of deals (May)Difference (%)
Two-year fix26926-90%
Five-year fix14211-92%

Why have deal numbers fallen?

Several factors around the response to the COVID-19 pandemic have resulted in thousands of mortgage deals being withdrawn from the market.

First of all, the government's decision to introduce three-month mortgage payment holidays saw banks being overwhelmed by calls from existing customers, so they needed to shift their priorities away from new business.

This was followed by the government's stay-at-home measures, which placed a hold 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 people with smaller deposits, meaning they simply withdrew these deals instead.

Finally, two emergency cuts to the Bank of England base rate have resulted in the number of tracker mortgages, which move in line with the base rate, dropping significantly.

What's happened to mortgage rates?

The good news for people looking to buy a home later this year is that mortgage rates have fallen at almost all levels of borrowing, despite the number of options reducing considerably.

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

Again, however, it's mixed news for those looking to borrow with a 5% or 10% deposit.

90% mortgage rates have fallen along with the rest of the market, but the significant reduction in deals has been keenly felt at 95% loan-to-value (LTV), where rates have become slightly more expensive.

Will low-deposit deals return?

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

The government's decision to reopen the property market in England earlier this week will see lenders reinstate in-person mortgage valuations, which could bring low-deposit deals back to the market.

Eleanor Williams, of Moneyfacts, says: 'We are now beginning to see lenders relaunching products, and some providers have eased the LTV caps they put in place early in the crisis.

'Those wanting to begin the process of remortgaging or purchasing should speak to their lender or an independent, qualified adviser, in order to lock in a low 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 finances and assess how much you could put towards a house deposit.

With the property market set for an uncertain year and house prices likely to be more volatile than usual, you might be considering putting off a prospective move for a while, and doing this could allow you extra time to save a bigger deposit.

The benefits of upgrading from a 5% deposit to a 10% deposit alone can be significant.

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

Advice on saving for your first home

Whatever stage of saving you're currently at, we're here to help you make the most of your money.

Our guide on how to save a mortgage deposit explains the various ways you can put money away towards your first home, including the pros and cons of Help to Buy Isas and lifetime Isas, which could boost your deposit by 25%.

You can also find out how much you might be able to borrow in our mortgage calculator and when the time comes, check out our guides on applying for a mortgage and boosting your mortgage chances.

Our advice on coronavirus

Experts from across Which? have been compiling the advice you need to stay safe and to make sure you're not left out of pocket.

Keep up to date with all the latest coronavirus news and advice from Which?.