More Than 110 5% Deposit Mortgages Back on the UK Market

Having been excluded from the market almost in its entirety last year, borrowers seeking affordable 5% deposit mortgages are once again being welcomed by a string of UK lenders. Motivated by a temporary government-backed initiative, major banks including Lloyds, Santander, Barclays, HSBC, and NatWest have reintroduced 95% LTV mortgages for the first time since the start of the COVID-19 crisis.

According to the latest figures from Moneyfacts, general mortgage availability is now at around 75% of its pre-pandemic level, with interest rates dipping as low as 1.27% for borrowers able to provide a larger down payment.

For prospective homebuyers interested in 95% LTV mortgages, there are now more than 110 options available from UK lenders. This represents an increase of around 300% from last month when just 34 mortgage products with 5% deposits were available.

The reintroduction of the 95% LTV mortgage was spurred by a mortgage guarantee scheme, wherein the government has agreed to underwrite 5% deposit loans for the purchase of properties up to a maximum value of £600,000. The initiative is one of many outlined over recent months to assist first-time buyers, who in many instances would be unable to save the usual 10% or 20% down payment required for a mortgage.

Strict qualification criteria

While the availability of 5% deposit mortgages will come as welcome news to many first-time buyers, experts are warning of increasingly strict qualification criteria for prospective applicants.

Along with limited availability for borrowers interested in building their own homes from scratch, borrowers will be expected to have an exceptionally strong credit history to qualify for a 95% LTV mortgage.

Speaking on behalf of Moneyfacts, finance expert Eleanor Williams highlighted the skyrocketing average property prices in the UK as another issue standing in the way of first-time buyers.

‘Higher LTV products returning and rates reducing could not come at a better time as house prices continue to rocket upwards, but housing supply remains an obstacle for would-be buyers.

Average interest rates remain competitive

For those able to qualify for a mortgage, average interest rates are still hovering close to all-time lows. Across all loan types, the current five-year fixed mortgage rate is sitting at around 2.7%, whereas two-year fixed-rate loans are being offered at an average of 2.57%.

The average APR on a 95% LTV mortgage will typically be significantly higher than on a loan with a larger down payment, but experts remain optimistic about the trajectory of the real estate market in general.

‘The sense of optimism in the mortgage sector continues, with product choice continuing its climb back towards pre-pandemic levels,’ added Williams.

‘After seven months of consecutive increases and 3,927 products now on offer, this represents a 53 per cent rise year-on-year and is the highest this total has been since March 2020 (5,222),’

‘Borrowers considering a shorter-term fixed deal may be pleasantly surprised to see that the average overall two-year fixed rate for all loan-to-value ratios reduced for the first time in nine months, dropping by 0.01 per cent to 2.57 per cent,’

‘However, the equivalent five-year fixed rate made a small rise of 0.02 per cent to 2.79 per cent, which may tie into the resurgence of higher LTV products, which traditionally carry higher rates,’

‘It is important to remember that in general, we remain in a relatively low-interest rate environment, with rate reductions evident across many product brackets over the last month and some extremely competitive products on the market for eligible borrowers.’