Small deposit mortgage flash sales: The ‘new normal’?
In the past six months, lenders have tightened their criteria amid market volatility due to the health crisis, making it harder for prospective buyers to get on the property ladder, despite the recent stamp duty holiday.
According to data site Moneyfacts, there are currently just 12 mortgage deals available for buyers with a 5% deposit (95% loan-to-value), down from 391 recorded at the start of March.
For those with a 10% deposit (90% LTV), there are just 50 deals on the market, down from 779 pre-pandemic.
Just last month, banking giant HSBC announced a temporary withdrawal of its 90% LTV mortgages for new customers after experiencing a surge in demand as other lenders pulled their low deposit deals in recent weeks.
It followed a number of high street lenders with the move, including Nationwide, Barclays and Halifax. Other lenders such as NatWest and TSB have also brought in restrictions for furloughed workers, adding another hurdle to the homebuying process.
Mortgage flash sales
Lenders are still wanting to keep their foot in the door and have recently taken to launching time-limited low deposit mortgages.
Coventry Building Society is today offering a 90% LTV mortgage for first-time buyers and the wider market via brokers. However, applications will close at 8pm tomorrow (15 October).
It follows TSB’s limited edition high LTV first-time buyer deals via intermediaries and direct, launched on 11 September and 29 September. Both deals were closed that same day.
And Accord Mortgages has also offered a series of limited edition first-time buyer deals on 7 and 21 September and 5 October, all lasting just two days.
Andrew Montlake, managing director at mortgage broker, Coreco, believes these flash sales will be a feature of the market “until we get back to soe semblance of normality”.
He says: “At present, lenders are unable to cope with the demand and rush of applications that launching a 90% LTV product and keeping it open for some time would bring.
“It really needs a concerted effort from a whole group of lenders to enter back into the market at the same time so no one lender takes the brunt. However pricing around this would be the issue, with the cheapest becoming quickly inundated.
“At present, a quick entry and exit into this area seems the only way lenders can cope. Whilst this is undoubtedly the main reason, I am also sure that risk departments within lenders also have a role to play here, with some concern over the threat of a second lockdown and the end of government support for those unable to go back to work.”
Speed is key
While many of the deals are marketed towards the first-time buyer market, 90% LTV mortgages are also geared towards second or third steppers.
Many are also made available via brokers rather than direct from the lender “as lenders know brokers have a pool of customers ready to go an can manage their distribution a lot better and more accurately through the intermediary channel”, Montlake says.
However, he adds there are lenders with direct offerings, especially for their existing customers.
Montlake also says that by dealing with a broker, prospective buyers are given the “best chance” as they’re not just waiting for one lender to produce an offering.
“As an example, we deal with over 90 different lenders and at any particular time any one of them could suddenly announce an offering. Having your paperwork ready, already checked over by a broker gives you the best chance of accessing one of these products at present,” he says.
Once a rate is secured upon application and once an offer is produced, it is valid for up to six months dependent on the lender.
Eleanor Williams, finance expert at Moneyfacts, says: “Much like savvy savers have needed to move quickly to take advantage of a top rate account over recent months, now too first-time buyers may only have a limited time to secure a low deposit mortgage.
“Lenders that have offered 90% mortgage deals have found themselves overwhelmed with demand, and in order to manage and maintain their service levels we may continue to see ‘limited edition’ products offered until more providers return to this sector of the market.
“Speed and preparation may therefore be key for those wanting to moving forwards with a first purchase in these turbulent times. Seeking the guidance and support of an independent, qualified advisor who has access to the whole of the market and is aware and up-to-date regarding what products will be available to meet their circumstances may be wise.”