High street lenders offer 5% deposit mortgages
HIGH STREET giants returned to ultra-low deposit mortgage lending yesterday, in a boost to borrowers who have found themselves “shut out” of the property market over the past year.
HSBC UK, Barclays and NatWest were among those launching 5% deposit deals for first-time buyers and existing home owners under the UK Government’s new mortgage guarantee scheme.
Santander will offer three new mortgages under the scheme today. Virgin Money will follow next month.
Katie Brain, a banking expert at financial information business Defaqto said: “When the pandemic started, all the mortgage deals for first-time buyers and those with small deposits just disappeared.
“Many who had saved hard for a deposit found themselves unable to get finance and were effectively shut out from the property market.
“Although there have been a few products that been briefly available during the pandemic, this is the first time that we have seen mainstream lenders in the high LTV (loan-to-value) market in nearly a year.”
Borrowers will still need to pass affordability checks. They will also need to check individual lenders’ policies to find out more about whether they could be eligible, with several lenders setting out exclusions for new-build homes yesterday. Some lenders also specified that selfemployed customers will be able to apply for their deals.
Aspiring home owners may also want to compare what is on offer under the scheme with the lowdeposit deals that are available outside it. Finance experts highlighted a five-year deal from Coventry Building Society at 3.89% with a £999 fee, which is not in the mortgage guarantee scheme.
Defaqto said that, within the scheme, NatWest’s offering of a twoyear deal at 3.90% with no fee, and its five-year deal at 4.04% without a fee, are particularly competitive.
The number of low-deposit mortgages on the market shrank dramatically in the early days of the coronavirus pandemic, as lenders became much more cautious in the tough economy. The new scheme will tackle this by helping borrowers to secure a mortgage with just a 5% deposit to buy a house for up to £600,000.
It will work by enabling lenders to purchase a Government guarantee that would compensate them for a portion of their losses in the event of a repossession. The guarantee will be valid for up to seven years after the mortgage is originated.
Eleanor Williams, a finance expert at moneyfacts.co.uk said: “Seeking independent and qualified advice may be a wise step for first-time buyers who have a 5% deposit. The best mortgage for their circumstances will come down to more than just the rate alone, and when considering a product it’s important to take into account the overall, true cost of the whole deal.
“This means balancing costs such as any fees, with any possible incentive packages the borrower may benefit from, against the initial rate.
“Having the up-to-date knowledge and support of an adviser who can consider both products that are in the mortgage guarantee scheme and those outside of it, may be invaluable.”
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