The number of low-deposit mortgages available has reached the highest level since 2008, new figures show.
Mortgage and general lending rules were tightened in the wake of the global financial crisis, which made it more difficult for some to secure amounts on a mortgage they needed – but also led to fewer defaults and people losing their homes as a result.
Lenders have recently been offering lowered mortgage conditions around and even below the four per cent mark, as interest rates slowly fall. Last month, Santander became the first major bank to make a notable change to its affordability tests, which priced up customers’ ability to pay back loans at a rate considerably above the true present level.
Moneyfacts data, as reported by the BBC, shows there are more than 440 deals on the market offering mortgages with just a five per cent deposit and more than 840 products on offer for homebuyers able to put down 10 per cent. It’s also possible to get no-deposit mortgages, but eligibility criteria are of course strict and there are only a handful of options in this area.
There’s always more to consider than just a deposit amount when applying for a mortgage, and there are still other pitfalls homeowners need to navigate despite the obvious benefits of the increased range of options for homebuyers.
Rising house prices
Over time, property tends to go up in price – that’s why many value getting on the ladder as early as they can and why some see property ownership as an investment.
However, one consequence of rising property prices is that it becomes more difficult for first-time buyers and those who are unable to raise higher deposit amounts. Data this week from Rightmove shows the average asking price for a home is now £377,182, an increase of 1.4 per cent rise from March which is a bigger jump than usual at this time of year.
Higher interest rates
Along with property prices reaching historic highs, the other side of any mortgage equation is the repayments – and interest rates being at a higher point right now than any time since 2008 means that is another significant challenge.
The base rate (set by the Bank of England) was still at 5 per cent in August 2008, before dropping to 2 per cent by December and eventually to around 0.5 per cent for the best part of a decade. But 2022’s cost of living crisis changed that, with the rate going from 1.25 per cent to five per cent in under a year – and we’re still at 4.5 per cent now.
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It means higher repayments than had been the case for homeowners, though rates are on the way back down and the UK is predicted to see at least three cuts across the rest of this year.
Stamp duty changes
Rightmove suggests there has been no huge drop in the number of completions since changes to stamp duty rules this month, despite a rush to beat the rises meaning backlogs arose and some would naturally have missed the boat.
But as of now, the relief threshold for not paying any stamp duty on home purchases has been reduced to £300,000, with five per cent payable on the remainder up to £500,000. Beyond that, standard rates are payable on house prices – and changes have been made to rules around second homes too.
It’s likely to impact many homeowners, increasing their costs by thousands of pounds and meaning the process of obtaining, affording and paying off a mortgage remains as difficult a task as ever, despite the increase in low-deposit products on the table.