Would-be homeowners who can raise only a 5% deposit have the pick of a greater range of mortgages at more competitive prices, according to new research by Moneyfacts.co.uk.
The data analyst has revealed the number of deals which cover 95% of the property’s value has soared from three to 405 in the last decade. In the last year alone a further 100 new small deposit mortgages have been added to the market.
Meanwhile, this influx of products has intensified competition between providers and this has forced rates down – in some cases by as much as 0.73% in the last year.
First-time buyers
Borrowers with small deposits are mostly first-time buyers, so the fact this market has expanded is good news for anyone attempting to get onto the property ladder.
Moneyfacts said not only would they have a greater choice of products but they would also benefit from better incentives and services.
Darren Cook, finance expert at Moneyfacts, said: “This can only be good news for borrowers, especially for those with a preferred provider in mind or those who require a more specific product at this tier.”
Fixing your mortgage rate
The research also revealed the biggest choice for small deposit borrowers was amongst the fixed-rate deals. These are mortgages where the interest rate is fixed for a specified period of time – usually two or five years.
More than 80% of the mortgages available to 5% deposit borrowers are fixed rate deals. Cook said: “These deals enable borrowers to have the certainty of knowing their monthly repayment amount, which is perhaps of particular importance to those taking their first steps on the property ladder.”
Despite mortgage lenders making efforts to meet the demands of first-time buyers, who they see as the lifeblood of the mortgage market, there are still hurdles for those with dreams of homeownership.
Cook added: “The Financial Conduct Authority (FCA) introduced clear affordability measures that mortgage providers must follow in the aftermath of the financial crisis, so potential first-time buyers will still need to jump through several affordability hoops before they will find themselves on the first rung of the property ladder.”
