Low deposit mortgage choice hits five-year high
First-time buyers are benefiting from the greatest choice of low-deposit mortgages in five years.
Moneyfacts data shows the availability of deals at the 95% loan-to-value (LTV) tier rose to 388 at the start of this month – the highest level since 391 products were recorded in March 2020.
Product choice overall fell month-on-month though to 6,451 options but the figure remains substantially higher than a year ago when it was 5,787.
The average shelf-life of a mortgage product rose to 36 days, from 21 days a month ago.
At the start of February 2024, the average five-year fixed rate was 5.18%; compared to the start of this month, the rate is 0.14% higher at 5.32%, Moneyfacts said.
However, the average two-year fixed rate has fallen by 0.04% over the same period, down from 5.56% to 5.52%.
Rachel Springall, finance expert at Moneyfacts, said:
“Borrowers with a limited deposit may find it encouraging to see a growth in choice for mortgages available at 95% loan-to-value, now at its highest count in almost five years.
“This is positive to see, but there is still lots of room for more deals to be pushed out in this area of the market as it represents just 6% of all deals available to borrowers across fixed and variable mortgages. Despite rising choice, average rates across a two- or five-year fixed deal at 95% loan-to-value are higher than at the start of 2025. Overall product availability across the mortgage spectrum fell, but the average shelf-life of a deal rose month-on-month, which was largely expected due to the festive period when there are typically fewer changes from lenders.”
Springall highlighted that lenders have been urged to do more to support first-time buyers, to boost growth in the economy, thus the debate on the loosening of lending rules, adding “Therefore, there is an expectation for more products and innovation to emerge this year.
“However, the current rules will continue to pose a challenge for lenders to do more, as has been the case for the past 10 years where regulatory recommendations stipulate loan-to-income ratios of 4.5 or more do not exceed 15% of a lender’s new lending.
“Until lenders see a relaxation to these rules, some will have no choice but to pose limitations on those borrowing at higher loan-to-value tiers. Regardless of whether these rules change or not, there will be borrowers hoping to finish up their purchase before the Stamp Duty deadline at the end of March 2025.”
There has been a drop in swap rates over the past few weeks, but Springall warns it may take a while for this to be reflected in mortgage pricing.
She said: “It can be a slow and steady process for lenders to move in the same direction. Borrowers may then be disheartened to know that fixed rates are not too dissimilar to what they were a year ago, with longer-term fixed rates somewhat higher.
“In truth, it can take a few weeks for lenders to catch up to a change in course on future rate expectations, or indeed to pass on reductions from any Bank of England base rate cuts, as the latter would be more immediately beneficial to borrowers sitting on a linked tracker rate. However, inflation is expected to rise in the coming months, which in turn makes it less likely for more base rate cuts.
“This will frustrate the millions of borrowers looking to remortgage in 2025 who plan to secure a fixed rate mortgage for peace of mind. After all, it remains the case that a fixed mortgage is much more affordable than falling onto a Standard Variable Rate (SVR), so borrowers about to come off a cheap deal must seek independent advice with urgency to assess the latest mortgages available to them.”
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