|We all know size isn't everything (ahem), but when it comes to mortgage deposits, bigger is better. That said, especially in the South East, the cost of living is so high, most first-time buyers struggle to save more than ten per cent.
Only a handful of deals now exist for buyers with smaller deposits, because lenders have slashed their ranges of 90% and 95% loan-to-value (LTV) mortgages since March.
So has Covid-19 ended the homeownership dream for thousands of first-time buyers?
Covid impacts on the mortgage market
A Moneyfacts report shows the number of mortgages dropped more than 50 per cent. Nine out of ten 90 and 95 per cent LTV deals have been withdrawn, leaving little choice for many first-time buyers.
There are three key reasons the bottom has fallen out of this end of the market:
- Three-month mortgage holidays - lenders swamped with dealing with this & new business has been parked;
- The Stay-At-Home measures ended in-person valuations, and desktop surveys were perceived as too risky for people with small deposits; &
- The Bank of England base rate cuts saw the supply of tracker mortgages disappear for all but the safest of borrowers.
These lower interest rates from the Bank of England should mean better news later in the year. The Moneyfacts report shows borrowing rates are the lowest they've been in twenty years. Though there are fewer products to choose from, they've not been this cheap for a long time.
This applies across the board EXCEPT for 95 per cent LTV deals, where rates are slightly more expensive. This is because, with only a 5 per cent deposit and a further economic crisis, there's a real risk of a borrower slipping into negative equity.
Beefing up your deposit
If you're a first-time buyer with small deposits, don't panic. Deals will re-appear as the dust settles and we return to 'normal'.
The reopening of the property market in England means we're back to in-person mortgage valuations. This will stop lenders being so skittish and should bring low-deposit deals back to the market.
In the meantime, think what you could do beef up your deposit further. I appreciate many are furloughed or worse. But with time on your hands, do a proper financial stock check and see if you can make some savings.
If you're just about to think about buying, speak to an independent, qualified adviser. It's a great time to do serious homework ahead of when the market rebounds. Here are a few suggestions to get going:
- Work out your current income and outgoings - try this tool.
- Check your credit file and sort out any problems you uncover
- Know exactly how much you have as a deposit
- Remember to budget for moving costs, solicitors fees.
- Try this Mortgage Calculator from Which?
- First-time buyers don't have to pay stamp duty generally but check with the mortgage broker or solicitor your circumstances.
- Approach a whole-market mortgage broker and find what mortgages you are eligible for and get a Decision in Principle (DiP) lined up - it'll make you more attractive to sellers and their agents
Good luck and get in touch if you have any questions!