Save, make, understand money

First-time Buyer

Big rise in small deposit mortgage deals for first-time buyers

Paloma Kubiak
Written By:
Paloma Kubiak

First-time buyers with small deposits have a much bigger choice of product today compared to five years ago, research suggests.

The number of 95% loan-to-value (LTV) mortgage deals – where first-time buyers only have to stump up a 5% deposit – has increased four-fold since June 2012.

Data from Moneyfacts reveals there are 288 95% LTV deals on the market this month, up from 251 this time last year and quadruple the 63 deals five years ago.

And the rates are also becoming more competitive with the average five-year fix in this category standing at 4.57%, down from 4.63% this time last year.

In the two-year fix category, there’s been a small rise in rates from 4.15% last June to 4.18% now due to the Help to Buy Mortgage Guarantee scheme being removed. However, rates are still competitive as the average rate two years ago was 4.70%.

The current best buy deal is from AA Mortgages, priced at 3.82% for two years with no product fee and an incentive package of free valuation and £400 cashback.

However, first-time buyers able to put down a bigger 10% deposit can secure much better deals, such as an average 2.75% on a two-year fix 90% LTV deal and 3.37% on an average five-year fixed 90% LTV deal.

Rachel Springall, finance expert at Moneyfacts, said the first-time buyer mortgage market has gone from strength-to-strength over the years boosted by government support.

“In previous years, there had been a lack of competition for those considered more risky, due to the small amount they could put down as a deposit. Prospective buyers today have so many more cost-effective mortgage options available, potentially making their dream of owning their first home much more achievable.

“Obviously, there are advantages for those first-time buyers who waited until now to get the best mortgage deal, yet there are also some significant disadvantages to buying a home today compared to years past. House price rises may cause borrowers to struggle to build a large enough deposit, particularly if a large portion of their income goes to rent. It’s vital that borrowers take note of any government initiatives to help them save – such as the Help to Buy ISA /Lifetime ISA to get a 25% boost.”