Up until recently, this had become a growth area in the mortgage market, with many lenders competing for new first-time buyers with the smallest deposits.
Indeed, figures out today from the Bank of England, revealed between April and June this year the numbers of borrowers taking out mortgages with small deposits had soared to the highest level since the end of 2008.
But a warning from regulator, the Prudential Regulation Authority (PRA), over the dangers of reducing rates for these borrowers, appears to have prompted a change.
New data on the latest mortgage trends published by Moneyfacts.co.uk is due to reveal the number of deals for borrowers with 5% deposits has fallen from 391 in August to 380 this month.
Meanwhile the average fixed rate being offered for a five-year deal for small deposit borrowers who need loans for 95% of their property’s value has gone up.
Darren Cook, finance expert at Moneyfacts said: “It is clear that most lenders are staying away from competing at the 95% loan-to-value (LTV) tier, with many now focusing their attention on mortgage business at LTV tiers of 90% and below.”
Better deals for 10% deposit borrowers
Indeed, while there had been a reduction in choice for those with the smallest deposits, Moneyfacts discovered those paying a little bit more at the outset, and putting down 10% of their property’s value, were in a much better position.
Indeed, the total number of mortgages available for 90% loan-to-value purchases had risen by 12 since August. Indeed, there were now 774 deals to choose from and the average rates had gone down.
Cook said the gap was widening between the rates on offer for borrowers with 5% deposits and those with 10%.
He added: “This could mean that those borrowers with a smaller 5% deposit may benefit from waiting to save until they accumulate a 10% deposit in order to secure a more favourable rate and have a greater choice of products – with double the number of mortgages on offer at the 90% LTV compared to the 95% LTV tier.”
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