Few first time buyer mortgage deals for those with small deposits

24 September 2008 / by Rachael Stiles
The number of mortgage deals for buyers with a deposit of 10 per cent or less has fallen by 45 per cent in the last 12 months, making it increasingly difficult for first time buyers to get a foot on the property ladder.

According to analysis from moneyfacts.co.uk, this time last year 74.2 per cent of all mortgages were available to borrowers with 10 per cent or less to put towards buying a property, but this has now dropped to 29.2 per cent, making it especially difficult for those looking for first time buyer mortgage deals.

A year ago, the mortgage market for buyers with a small deposit, or even no deposit at all, was still extremely competitive, but that has all changed, says Darren Cook, mortgage expert at moneyfacts.co.uk.

For those needing to borrow less than 80 per cent of the property's value, there are 37 per cent more mortgage deals available today than there were at this point last year, as lenders try to attract customers to their mortgage books that have substantial levels of equity in their home and therefore present less of a risk.

The number of 100 per cent mortgage deals available for those who have no deposit has fallen by 13 per cent, making them practically extinct; they now account for just a fraction of the mortgage market, compared to 13.4 per cent last September.

Last September, "Competition was one of the major factors when setting mortgages rates and best buys were awash with deals at 95% LTV." Mr Cook explained, as lenders strived to draw in huge numbers of customers, regardless of their credit worthiness. But, "Today the overriding factor when setting mortgage rates is risk.

"Lenders are focusing much more on risk. They are making less products available to borrowers with a small deposit and making the few that are available much more expensive."

And high LTV mortgage deals continue to become increasingly expensive and scarce, with several lenders raising their rates this week in light of the Libor rate – at which lenders borrow and lend to each other – rising again in the wake of stock market turbulence.

Because house prices continue to fall, lenders remain concerned that before a mortgage deal period comes to an end, borrowers could fall into negative equity, owing more than their property is worth.

The full effect is yet to be seen, Mr Cook continued, predicting that "The effect will start to be seen in the coming weeks, as lenders revise rates, get them approved internally and marketed through branches."

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