Return of the low-deposit mortgage

PEOPLE struggling to get a foot on the property ladder are being targeted in a low-deposit mortgage boom.

Homebuyers who only have a 5 per cent deposit now have a choice of 405 different mortgages, according to research.

A decade ago just three deals were available. Average interest rates for these riskier borrowers have also come down sharply. It suggests the banks are desperate to attract first-time buyers with little money stashed away.

But low-deposit lending leaves customers vulnerable if there is a fall in house prices, which could tip them into negative equity, where the value of their home is less than what they owe the bank.

Commenting on the research by Moneyfacts Ray Boulger, of mortgage broker John Charcol, said: ‘The higher your loan compared to the value of your property, the more risk there is of negative equity. I wouldn’t recommend anyone buying a property unless they are planning to stay there for at least three years.

A splurge in risky lending helped cause the 007- 008 crisis when £14.6billion was lent to customers who had deposits of less than 10 per cent.