Top 25 first-time buyer mortgages!

George Osborne hinted last week that the Bank of England will be able to cap mortgages from early next year, meaning that first-time buyers could need to save even bigger deposits to get onto the housing ladder.

The Chancellor was speaking to MPs when he confirmed that the Bank of England’s Financial Policy Committee (FPC) will be given regulatory power over the mortgage market, and he admitted that this may include powers to limit mortgages for those with small deposits (usually first-time buyers).

What does this mean?

As we explained in Bank of England given powers to curb mortgage sizes, there were no firm details revealed, but it could mean that the Bank of England will be able to determine the maximum mortgages lenders are allowed to offer depending on market at the time.

For example, when the market needs a boost (like now) it could enable lenders to offer deals to borrowers with small deposits of 5% and 10% in a bid to encourage first-time buyers into the market.

On the flipside it could ban such deals in more buoyant times if the powers that be reckon the market is overheating, and limit lenders to offering deals to those with, say, a 20% deposit or more. The theory is that this would prevent a repeat of the crazy situation just before the credit crunch where ‘no deposit’ mortgages were commonplace and lenders’ criteria were seriously loose.

The FPC will gain these new powers over mortgage lenders from Jan 2013, and will be led by the Governor of the Bank of England, Mervyn King. Osborne told MPs last week that the Committee’s remit will be to rein in the mortgage market. ‘Its job is not just to try to moderate a credit boom but to try to alleviate a credit bust” he stated.

Stuck between a rock and a hard place

The mortgage market has changed massively in the last five years. In many ways it has already been forced to clean up its own act as a result of political and also commercial pressures.

Indeed lenders are very often blamed for the opposite problem of first-time buyers being unable to borrow enough to get onto the housing ladder.

It seems that lenders are stuck between a rock and a hard place. They face calls to help first-timers buy their own homes and help get the market out of the doldrums, but are restrained by the need to lend within tight limits.

And, if the Chancellor does give the Bank power to cap mortgages next year, these limits could become tighter still.

Timing is everything

The first-time buyer mortgage market has actually become a lot more competitive in recent months. At a time when lenders have been increasing their rates overall, some have actually reduced their deals to those buyers with a small deposit.

In fact the premium that borrowers with a small deposit have to pay compared to everyone else has reduced considerably in the last year.

And there is certainly more choice for those with just 5% or 10% to put down. There are now 49 mortgages for borrowers with just a 5% deposit compared to a mere three in April 2009, according to financial information provider Moneyfacts. For buyers with 10% to put down, there are now 280 mortgages compared to 72 almost three years ago.

Of course, it still makes sense to save up as much as possible to buy your first home, as you will be able to access more deals and you will minimise your monthly outgoings.

But it is good to see lenders finally beginning to compete in the ‘low deposit’ market, offering much needed choice to first-time buyers. Let’s just hope the Bank of England is not too heavy handed with its new mortgage powers next year!

Move quickly, avoid tax

There's another reason first-time buyers may want to move quickly. If they manage to complete before 24 March this year they will also sidestep Stamp Duty on any purchases worth up to £250,000. That may seem like an impossible task, but if there is no chain involved it's absolutely achievable.

In fact, if you're in a position to move quickly, make sure you make that very clear to the vendor - you may even be able to knock the asking price down! For more tips on how to get your dream property for less, check out Pay less for your perfect property

Below are some of the best mortgages on offer for first-time buyers with small deposits:

5% deposit

* Lend a Hand Mortgage - the buyer needs a helper to hold 20% of the purchase price in a savings account with the lender

10% deposit

15% deposit

More: Buy your council house! Right to Buy is back| How to stand the best chance of getting a mortgage

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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.