First-time buyers cashing in as banks fight for custom

Mortgage lenders have opened the door to first-time buyers, cutting rates and boosting the number of deals as they compete for customers.

Buyers with low deposits have been virtually locked out of the mortgage market since the pandemic started. Yet lenders jostling for business have cut rates for those with small deposits in recent weeks, signalling the intensity of the rate war, with lowdeposit loans much riskier for lenders.

The average rate of a two- year and five- year fixed deal with a 10pc deposit dropped by 0.14 and 0.13 percentage points respectively this month, according to Moneyfacts, the data company.

Nationwide was the latest building society to appeal to first-time buyers, cutting its rates by 0.15 and 0.2 percentage points on two and five-year fixed deals for borrowers with a 5pc deposit.

Matt Coulson, of Heron Financial, a mortgage broker, said: “Lenders still have big sales targets to hit. Dropping rates seems to be the go-to method of bringing clients to the table, which is great for first-time buyers.”

Nervous banks and building societies pulled hundreds of deals catering to small deposits when the pandemic hit in March last year because of the riskier nature of these borrowers. Although lending to those with large deposits bounced back once the economic outlook brightened, the number of deals available for first-time buyers lagged. Low- deposit lending has crept up. In August banks launched an additional 22 loans for those with a 5pc deposit. This brought the total number to 275, up from 20 in August last year. However, this is still fewer than the 391 offers seen in 2019.

David Hollingworth, of L& C, another mortgage broker, credited the Government-backed guarantee scheme, which started in April, with “turbocharging” the return of 95pc mortgages.

Buyers can purchase homes worth up to £ 600,000 with a 5pc deposit, with the Government offering security on any losses.

This also helped boost lending outside the scheme and prompted a flood of low-deposit deals.