For the last few years, securing a mortgage with only a small deposit has been very difficult, if not impossible for many home buyers.
Mortgage lenders are still very cautious, but the market is slowly improving in terms of the choice available to borrowers. This week the Council of Mortgage Lenders said that gross mortgage lending rose in March by 21% and it predicts that the availability of mortgage credit will improve over the next few months, helping to bolster the housing market.
Over the last month we’ve already seen some new deals creep into the market that could help first time buyers in particular.
This month, Skipton Building Society launched a new mortgage deal that allows a deposit of just 5%. The deal is a two-year fixed rate at 6.49% with a £195 arrangement fee. It’s available up to 95% loan to value to both home buyers and people looking to remortgage and it may well appeal to some first time buyers struggling to build up a deposit.
Skipton’s deal is one of only a handful of deals currently available to borrowers with only a 5% deposit. Clydesdale and Yorkshire Banks (part of the same group) have a three-year fixed rate at 6.99% up to 95%.
A few others are available up to 95%, but require additional support from a third party. Bath and National Counties Building Societies offer deals for first time buyers up to 95%, but both require that an additional charge is taken against the parents’ property.
Lloyds TSB’s Lend-a-Hand scheme works in a similar way, but uses parents’ savings as additional security, rather than their property. Lloyds’ has also launched a pilot Local Lend-a-Hand scheme in conjunction with some local authorities to help first time buyers.
Another new option is the Government’s FirstBuy scheme which was announced in last month’s budget. FirstBuy is likely to be open to those with a household income of less than £60,000 a year who can put down a 5% deposit. Buyers who qualify will be eligible for an equity loan of up to 20% of the property value which will be jointly funded by the Government and housebuilders.
The Government says that this £250million scheme will help over 10,000 first time buyers. It is due to launch later this year and will only cover newly built homes on specific housing developments.
All these deals suggest that options are improving for those people unable to find a big deposit, however deals are still hard to come by and lenders will still be strict in terms of their lending criteria so not everyone will qualify.
If you're buying a new home and are able to save up enough to get you to a 10% deposit, you’ll not only improve your chances of getting a mortgage, but you'll also give yourself a wider choice of deals.