Low deposit mortgages hit 17-year high as lenders ‘bend over backwards’ for borrowers | Personal Finance | Finance

Brokers have said lenders are “bending over backwards” for borrowers as the number of low-deposit mortgage deals on the market hits a 17-year high. Brits are warned to be cautious when entering into these types of mortgages, as they can come with greater risk.

New data from Moneyfacts shows that the number of mortgage deals at both 95% and 90% loan-to-value (LTV) has risen to 1,360, the highest point in 17 years. Product choice has also increased overall month-on-month to 7,062 options, its highest count since October 2007. Rachel Springall, finance expert at Moneyfacts, said: “The Government has been adamant that they want lenders to do more to boost UK growth, so a rise in mortgage choice is positive.”

Despite this, the finance expert pointed out: “It may be a bit too soon to celebrate, as affordability remains a critical hurdle for buyers. Those who want to secure their repayments for the next five years will find that higher LTVs are only dropping by minuscule margins. Indeed, the average 95% and 90% LTV five-year fixed interest rates fell by just 0.02% and 0.01% month-on-month.”

Justin Moy, managing director at Chelmsford-based EHF Mortgages, welcomed the news. He said: “Lenders are bending over backwards to allow potential borrowers to buy their dream home, coupled with greater affordability opportunities, helping borrowers stretch their incomes a little further.

“For those with smaller deposits, now may be the time to consider your options and check your budget. You may be surprised at what you could achieve and get on the property ladder.”

Emma Jones, managing director at Runcorn-based Whenthebanksaysno.co.uk, said: “With affordability a constant thorn in many borrowers’ sides, we’ve seen a huge amount of innovation among lenders in recent months, something the Government is keen to see more of. This is almost certainly feeding into product volumes.

“Lenders are keen to get the mortgage market firing and they know that, in order to do so, the spark is first-time buyers and people with smaller deposits.”

However, low-deposit mortgages can carry drawbacks, including higher interest rates and the heightened risk of negative equity if property values fall.

Ms Jones warned: “More choice is fantastic, but equally, people need to ensure they are getting the right product, and, to that end, should speak to a broker.”

Andrew Montlake, CEO at London-based Coreco, added that, while product numbers are at their highest level since before the Global Financial Crisis, “we are highly unlikely to get a repeat of that this time round”.

He said: “Lenders these days have a different mindset and will not allow a repeat of 2008. Though the rise in product choice is encouraging, what’s less encouraging is that rates have started to rise again, albeit only slightly.”

Katy Eatenton, mortgage and protection specialist at St Albans-based Lifetime Wealth Management, said: “Lenders have been very active over the summer months, looking at new ways of improving affordability by tweaking their criteria or enabling people to borrow that little bit more. Even small tweaks can make a big difference for many aspiring first-time buyers, who are typically those buying with a 5% or 10% deposit.”

She cautioned: “Rates, however, have started to edge up and may continue to rise throughout September, so buyers need to lock into rates as soon as possible.”