The number of low deposit deals continues to decline, despite the fact that Nationwide is returning to the market
Is the mortgage crisis really over? Experts warn that deals for borrowers with small deposits are likely to remain limited for some time
- The number of deals for 10 percent depositors continued to decline this month
- This is despite the fact that lenders such as Nationwide and Coventry BS are re-introducing products
- Experts predict deal numbers will continue to “ebb and flow” for months to come
The number of mortgage contracts for buyers with a 10 percent down payment has continued to decline, despite the fact that some of the country’s largest lenders have re-entered deals, new figures reveal.
Lenders made up half of all mortgage contracts after the pandemic, but in recent weeks, both Nationwide and Coventry Building Society have once again started offering 90 percent loans at the value of loans.
Experts predicted that more lenders would follow when these deals were reintroduced, leading to more choice and lower starter rates.
But there has been no recovery so far, as the number of deals for small depositors continued to decline over July, figures from Moneyfacts experts show.
The number of deals for borrowers with a 10 percent down payment has more than halved since June
Lenders were quick to tackle these deals as the pandemic hit and more mortgage contracts with lower deposits were made in the first four months of closing than in the entire first year of the financial crisis.
Nationwide has since joined HSBC to relist these deals, while Coventry Building Society has also offered them for limited periods.
This came when the chancellor introduced his stamp tax cut and confidence in the market seemed to be increasing again.
Why have lenders closed low-deposit deals?
Lenders have usually blamed staff shortages, forcing them to curb new mortgage loans and focus on existing clients, with most of the country working from home and a wave of clients applying for mortgage vacations.
Lower deposit mortgages typically require more work to sign because they pose a higher risk to the lender.
As a result, if staffing issues at banks and construction associations cause deals to close, it’s these deals that come first.
It is also likely that lenders are less willing to lend to those who would have a smaller cushion against negative equity if house prices collapsed.
But despite these new numbers from Moneyfacts, the number of available deals has continued to decline over the past month.
This will hit budding buyers particularly hard as the group is most likely looking for a mortgage with a small down payment.
For example, according to Moneyfacts, there were about 70 deals at the beginning of the month at 90% loan-to-value, compared to 67 today.
To put this in context, there were 780 such deals before the lockdown was implemented in March.
This means that 92 percent of the deals broke off during this period.
Low-deposit 95% loan-to-value deals are starting to recover, with 20 now available compared to 14 in early July.
But most of these deals are specialist options – for example, family assistance mortgages – and will not be available to most borrowers.
However, the 85 percent deal rate has grown slightly over this period, suggesting that lenders are more relaxed in lending to those who can scrape together a 15 percent down payment.
Rates have gone up as the number of deals drops
This crisis at the bottom of the loan-to-value scale, possibly coupled with the inconvenience of lenders to hiring too many risky clients, has pushed up rates for those at the bottom of the market.
The average rate for a two-year 95% loan is now 4.25%, compared to just 3.94% in early July.
This means that if you took out a £ 100,000 mortgage over a 25-year period in early July, you would pay £ 17.21 less in interest each month, or nearly £ 400 over the life of the deal than if you had one today enter into.
Meanwhile, the average two-year deals of 90 percent saw average interest rates rise slightly from 2.9 percent in the same period to 2.9 percent.
Moneyfacts, “said Eleanor Williams:” It remains an extremely fluid landscape in the higher loan-to-value levels, and while it was fantastic to see Nationwide relaunch about 90 percent of its products, we may see low and floods in availability, while providers who have relaunched in these sectors are balancing the high demand from borrowers. ‘
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