The number of mortgage deals for buyers with a 10% deposit continued to decline despite the reintroduction of some of the country’s largest lenders, new figures show.
Lenders have closed more than half of all mortgage deals in the wake of the pandemic, but in recent weeks Nationwide and Coventry Building Society have resumed offering 90% value loan deals.
Experts predicted that more lenders would follow suit by reintroducing these offers, leading to more choice and lower rates for first-time buyers.
But so far, a recovery has not materialized, as the number of transactions for small deposit borrowers continued to decline through July, figures from experts at Moneyfacts revealed.
The number of transactions for borrowers with a 10% deposit has more than halved since June
Lenders quickly ended those deals as the pandemic struck with more low-deposit mortgage deals in the first four months of foreclosure than in the entire first year of the financial crisis.
Nationwide has since joined HSBC to offer these offers again, while the Coventry Building Society has also offered them for limited periods.
This came as the Chancellor introduced his stamp duty cut and confidence in the market appeared to be on the rise.
Why Do Lenders Have Low Deposit Agreements?
Lenders have mainly blamed staff shortages forcing them to curb new mortgages and focus on existing clients, with the majority of the country working from home and a wave of clients requesting mortgage vacations.
Lower deposit mortgages generally take more work to take out as they present a higher risk to the lender.
As a result, if staffing issues in banks and building societies lead to contract reductions, those deals come first.
Lenders are also likely to be less willing to lend to those who would have less protection against negative equity if house prices collapsed.
But despite these new figures from Moneyfacts revealed that the number of available offers continued to decline over the past month.
This will particularly hit first-time buyers, as the group is most likely to be looking for a mortgage with a small deposit.
For example, there were about 70 90% loan-to-value transactions at the start of the month, up from 67 today, according to Moneyfacts.
To put that in context, there were 780 such agreements before the lockdown was implemented in March.
This means that 92% of transactions were cut during this period.
Low deposit 95% lending has started to pick up, with 20 now available compared to 14 at the start of July.
But the majority of these offers are specialty options – for example, family mortgages – and will not be available to most borrowers.
However, the number of transactions of 85 percent has increased slightly during this period, suggesting that lenders are more relaxed about lending to those who can muster a 15 percent deposit.
Rates soared as the number of transactions declined
This tightening to the bottom of the loan-to-value ladder, perhaps coupled with lenders’ unease with taking on too many risky clients, has resulted in higher rates for those at the bottom of the market.
The average rate on a 95% two-year mortgage is now 4.25%, down from just 3.94% at the start of July.
This means that if you could manage to take out a £ 100,000 mortgage taken out over 25 years at the beginning of July, you would pay £ 17.21 less each month in interest or almost £ 400 over the life of the transaction than if you took one today.
Meanwhile, 90% two-year average transactions saw average rates rise slightly to 3.05%, from 2.9% over the same period.
Eleanor Williams of Moneyfacts said: “There remains an extremely fluid landscape in higher loan value levels, and while it has been fantastic to see Nationwide relaunch around 90% of products, we may well continue to see flows. and a decline in availability, while providers who have been able to relaunch in these sectors face such high levels of borrower demand ”.
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