The return of higher loan-to-value mortgages is making getting on the property ladder more affordable again for first-time buyers.
Many lenders withdrew their mortgage deals for those looking to borrow more than 75% of the property value when the lockdown due to the coronavirus was first announced, but in recent days several have started re-introducing deals for those with smaller deposits.
For example, new Nationwide customers can now apply to borrow up to 95% of the property value, while Clydesdale/ Yorkshire Bank has brought back its first-time buyer mortgages for those with a 10% deposit to put down.
According to financial website Moneyfacts.co.uk, the number of two-year fixed rate mortgage deals for those looking to borrow 90% of the property value has risen from 24 in May to 55 in June, while the number of deals for those borrowing 85% increased from 87 in May to 116 in June.
However, options for those with only a 5% deposit remain limited, with just six two-year fixed rate mortgage deals available to those looking to borrow 95% of the property value, and nine five-year fixed rate deals.
Rachel Springall, finance expert at Moneyfacts.co.uk, explained: “As lockdown eases, and individuals return to work and attempt to discover normality again – they may well be starting to house-hunt.
“It is hoped that the mortgage market will adapt once more to accommodate borrowers with small deposits, but it will not happen overnight.”
Mortgage lenders reduce rates
Several lenders have reduced the cost of their fixed rate mortgages in recent days, making it cheaper for first-time buyers to purchase a home.
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Nationwide, for example, has just reduced its two-year fixed rates for those borrowing up to 90% of the property value by 0.15%, and its three and five-year rates for home buyers borrowing this amount by 0.05%.
Moneyfacts says that in June, the average rate on a two-year fixed mortgage for a first-time buyer with a 5% deposit is 3.28%, while the average rate for someone with a 10% deposit is 2.30%.
But expect valuation delays
Although the mortgage market is gradually re-opening for first-time buyers, those hoping to get on the property ladder in the next few weeks may face delays as lenders work through a backlog of physical valuations.
These had to be put on hold whilst stricter lockdown measures applied. Many lenders have relied on automated valuations in recent weeks, but where a buyer has only a 5% deposit to put down, a surveyor must visit the property in person to assess its value.
The physical valuations backlog is expected to take a few weeks to clear, especially as some surveyors may have been furloughed by their employers, so buyers with small deposits may need to be patient.
For those with slightly larger deposits to put down, for example 10% or 15% of the property value, a small number of lenders will use automated valuations on the property.
According to Moneyfacts, HSBC currently offers a 90% loan-to-value mortgage that will use automated valuations for both homebuyers and those remortgaging, along with Aldermore Mortgages and Post Office Money which both offer mortgages at 85% loan-to-value for homebuyers.
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