The best mortgages for low deposits


Updated on 25 May 2011 | 1 Comment

If you only have a small deposit for a house, things are starting to look a little brighter...

If you’ve ever bought a property, or even if it's still only something you dream about, you’ll know that saving up for a deposit for a mortgage can be tricky – particularly in the current climate. And, of course, thanks to the credit crunch, the days of 100% mortgages have pretty much disappeared.

However, if you’re struggling to get a large deposit together, the future may be starting to look a little brighter. Indeed, according to Moneyfacts, the number of lenders offering 90% loan-to-value deals is on the up, having increased from 31 lenders in May 2010, to 48 lenders today.

What’s more, the rates offered on these mortgage deals are also improving.

Better rates

According to Moneyfacts, the average rate for mortgage borrowers who only have a 10% deposit has fallen below 6% for the first time since March 2008. That’s pretty encouraging stuff, particularly given base rate has remained at 0.5% for more than two years.

What’s more, although all LTV rates have fallen compared to a year ago, 90% mortgages have seen the greatest fall, as the table below shows:

LTV

Average rate May 2010

Average rate May2011

Change

90%

6.38%

5.98%

-0.40%

75%

4.21%

4.02%

-0.19%

60%

4.06%

3.91%

-0.15%

Source: Moneyfacts.

Of course, lenders still prefer to offer mortgages to those of you who have larger deposits, purely because this strategy is less risky. However, despite this, the number of deals available to borrowers with a 10% deposit is on the up, having jumped 41% since last May to the current 229.

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So clearly, if you do only have a 10% deposit, the choice of mortgages available to you is steadily growing – and that can only be a good thing for first-time buyers who have been struggling to get a foot on the property ladder.

Generous lenders?

Skipton Building Society has even gone so far as offering a lifeline to borrowers with  deposits of just 5%, becoming the first lender to offer rates lower than 6% (without the need for a guarantor) since the peak of the credit crunch.

Indeed, it currently offers a two-year fixed rate deal at 5.99%, which comes with a £195 fee.

If you’ve got a slightly larger deposit of 10%, you can get an even better interest rate of 5.49%. Again, this comes with an application fee of £195 – however, you’ll also have to pay a completion fee of £800.

But while this might look attractive, this rate can actually be beaten by Chorley Building Society’s deal at 5.19% with a £995 fee (see table below).

Of course, you might be thinking that these mortgage deals don’t seem particularly competitive at all, given base rate has sat at 0.5% for over two years.

However, it’s important to remember that base rate isn’t the deciding factor when it comes to fixed rate mortgages – instead, swap rates play the important role (find out more in Fixed mortgages reach highest rates in six years) and these have recently been on the up. As a result, fixed rate mortgages are also likely to start to climb going forward.

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So personally, I would be tempted to lock into an even longer deal than a two-year fix.

Getting accepted

Of course, just because the market for lower deposits is becoming more competitive, that doesn’t necessarily mean you’ll get accepted for the mortgage you want. And although mortgage affordability is said to be at a ten-year high, mortgage approval figures are still nothing to get excited about.

So if you are concerned about this, make sure you have a read of Seven reasons mortgage lenders turn you down. And as with anything financial, don’t bite off more than you can chew – even with increasingly competitive mortgages on the market, if there’s any chance you might struggle to keep up with your repayments, you’ll be far better off waiting until having a mortgage is realistically affordable.

Finally, let’s take a closer look at some of the best fixed and variable deals on the market for those of you with deposits between 10% and 20%.

Ten top fixed rate deals

Lender

Term

Interest rate

Maximum loan-to-value

Fee

Coutts & Co

Two-year fixed

3.89%

80%

0.5% (min £1,000)

Post Office

Two-year fixed

3.95%

80%

£995

Norwich & Peterborough BS

Two-year fixed

3.99%

85%

£995

Chorley BS

Two-year fixed

5.19%

90%

£995

Yorkshire BS

Three-year fixed

4.59%

85%

£1,995

Cumberland BS

Three-year fixed

4.65%

85%

£699

Nottingham BS

Three-year fixed

5.49%

90%

£195

Yorkshire BS

Five-year fixed

5.09%

85%

£1,495

Nottingham BS

Five-year fixed

5.69%

90%

£195

Skipton BS

Five-year fixed

5.99%

90%

£800 completion, £195 booking

Ten tremendous trackers

Lender

Term

Interest rate

Maximum loan-to-value

Fee

Loughborough BS

Two-year discounted variable

2.69% (tracks base rate plus 2.10%)

80%

£495

Norwich & Peterborough BS

Two-year discounted variable

2.59% (tracks base rate plus 2.09%)

85%

£995

HSBC

Two-year discounted variable

2.99% (tracks base rate plus 2.49%)

85%

£999

Yorkshire BS

Two-year variable

2.99% (tracks base rate plus 2.49%

85%

£1,995

Post Office

Two-year variable

3.49% (tracks base rate plus 2.99%

85%

£995

Post Office

Two-year variable

4.85% (tracks base rate plus 4.35%)

90%

£995

Bank of China

Term tracker

2.80% (tracks base rate plus 2.30%)

80%

Between £1,295 and 0.5% of advance, depending on mortgage size

HSBC

Term tracker

3.99% (tracks base rate plus 3.49%)

85%

None

Northern Bank

Term tracker

3.79% (tracks base rate plus 3.29%)

90%

£799

HSBC

Term tracker

4.69% (tracks base rate plus 4.19%)

90%

None

More: Get a marvellous mortgageAvoid these rubbish mortgage deals | How to pick the right remortgage deal

Use lovemoney.com's innovative new mortgage tool now to find the best mortgage for you online

At lovemoney.com, you can research all the best deals yourself using our online mortgage service, or speak directly to a whole-of-market, fee-free lovemoney.com broker. Call 0800 804 8045 or email mortgages@lovemoney.com for more help.

This article aims to give information, not advice. Always do your own research and/or seek out advice from an FSA-regulated broker (such as one of our brokers here at lovemoney.com), before acting on anything contained in this article. 

Finally, we tend to only give the initial rate of a deal in our articles, but any deal which lasts for a shorter period than your mortgage term may revert to the lender's standard variable rate or a tracker rate when the deal ends. Before you take out a deal, you should always try to find out from your lender what its standard variable rate is and how it will be determined in the future. Make sure you take all this information into account when comparing different deals.

Your home or property may be repossessed if you do not keep up repayments on your mortgage.

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