Number of low-deposit mortgages hits two-year high - what are your options?

The availability of mortgage deals for those with a 5% deposit has risen in recent years. We look at the options for first-time buyers.

Calculator leaning against model house
There are 361 mortgage deals on the market that have a 95% loan-to-value, up from 270 at the start of this year
(Image credit: Getty Images)

First-time buyers with small deposits will be pleased to learn that the choice of low-deposit mortgages has hit a two-year high.

There are now 361 mortgage deals on the market that have a 95% loan-to-value, up from 270 at the start of this year, according to the data analyst Moneyfacts.

The number has almost doubled since July 2023, when there were just 188 low-deposit mortgages on sale.

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Rachel Springall, finance expert at Moneyfacts, says the figure could rise further, spelling more good news for those with limited budgets and facing high house prices.

“The 361 options available is the highest count since May 2022, when there were 369 deals,” comments Springall.

“There is lots of room for growth in this area of the market, as it currently represents just 5% of all deals available to borrowers across fixed and variable mortgages.”

David Hollingworth at the broker London & Country Mortgages says that having a good supply of mortgage options for buyers with a small deposit “could be invaluable in accelerating their ability to get on the housing ladder”. 

He adds: “Mortgage rates will be higher than for those with a bigger deposit but that has to be balanced against the chance to buy sooner or even at all.”

First-time buyers will also be eagerly waiting to hear more about Labour’s Freedom to Buy initiative, which is designed to help get 80,000 young people onto the property ladder over the next five years.

Mortgage choice is increasing

It’s not just low-deposit mortgages increasing in number - overall product availability has also continued to rise, hitting a 16-year high.

Property buyers and homeowners remortgaging now have 6,658 mortgages to choose from. A year ago, there were only 4,396 deals available.

Mortgage product availability dipped in the wake of Liz Truss's disastrous mini-Budget in 2022. A staggering 1,700 mortgages - 40% of the market at the time - disappeared from sale in the space of a week.

Last summer, almost 800 deals - 10% of the market - were withdrawn by mortgage lenders who were spooked about how high interest rates could go. 

This was at a time of higher-than-expected inflation figures, with the rate for April 2023 coming in at 8.7%.

Springall notes that the increased availability of mortgages is “spreading a positive sentiment” in the market. 

Average mortgage shelf-life is also improving

There’s more good news for those mulling over mortgage deals - you now have longer to choose the right product for you.

The average shelf-life of a mortgage product had dropped to just a couple of weeks, forcing buyers and homeowners to move quickly if they wanted to secure a deal.

However, the average shelf-life of a mortgage is now 30 days, up from 15 days last month, according to Moneyfacts. 

The lowest shelf-life average was 13 days in July 2023.

Springall says the increase in shelf-life is due to “volatile swap rates” becoming calmer last month. 

Mortgage rates continue to climb

The bad news is that mortgage rates are still rising. This is despite Bank of England base rate being stuck at 5.25% since August 2023.

Average mortgage rates have gone up for five months in a row.

The overall average two- and five-year fixed rates rose between the start of June and the start of July, to 5.95% and 5.53% respectively, according to Moneyfacts.

However, a handful of mortgage lenders are making ad-hoc cuts to their rates. 

For example, Barclays and The Mortgage Works (the buy-to-let arm of Nationwide) reduced some of their rates last week. Nationwide is trimming rates on some of its fixed mortgage rates by up to 0.3 percentage points from tomorrow (9 July).

The average two-year tracker variable mortgage rate is 5.94%, says Moneyfacts, while the average standard variable rate (SVR) is 8.17%.

First-time buyer options

As well as increased choice of low-deposit mortgages, lenders are offering more innovative products.

For example, Yorkshire Building Society unveiled a 99% loan-to-value mortgage in March. Buyers need a £5,000 deposit and can use the mortgage product on homes worth up to £500,000, effectively providing a 99% loan-to-value loan.

Meanwhile, Skipton Building Society launched its Track Record mortgage last year, which requires no deposit and uses rent payments to work out what you may be able to borrow. 

Hollingworth says it’s important borrowers look at the mortgage fees as well as the rate. 

He tells MoneyWeek: “First-time buyers should keep a close eye on any associated fees rather than be overly focused on the lowest rate. Looking at the total cost of a deal over the mortgage period will help deliver better value.  

“Lenders understand that first-time buyers won’t want to cover lots of other costs at an expensive time and so will often have options with no fee but also may add other incentives such as cashback.”

Labour’s victory in last week’s general election should also usher in a new housing policy, the Freedom to Buy scheme.

The party has pledged to help get 80,000 people onto the housing ladder over the next five years. It will do this by making the current mortgage guarantee scheme – due to expire in June next year - permanent.

Labour says it will incentivise lenders to offer high loan-to-value mortgages by acting as a guarantor for first-time buyers who cannot afford a big deposit.

We may see more detail about this in Labour’s first Budget, which is set to take place in the autumn.

Ruth Emery
Contributing editor

Ruth is an award-winning financial journalist with more than 15 years' experience of working on national newspapers, websites and specialist magazines.

She is passionate about helping people feel more confident about their finances. She was previously editor of Times Money Mentor, and prior to that was deputy Money editor at The Sunday Times. 

A multi-award winning journalist, Ruth started her career on a pensions magazine at the FT Group, and has also worked at Money Observer and Money Advice Service. 

Outside of work, she is a mum to two young children, while also serving as a magistrate and an NHS volunteer.