Low-deposit mortgages are becoming increasingly popular, offering a boost to first-time buyers in a market where house prices and mortgage rates are higher than they’ve been in 17 years.
A significant increase in low-deposit mortgages is available to borrowers, with the number of deals requiring a deposit of 5% or 10% reaching their highest level since the financial crisis of 2008.
Low-deposit mortgages allow homebuyers to purchase a property with a deposit as low as 5% of the purchase price.
This type of mortgage is also known as a low-down-payment mortgage or a low-deposit loan.
In the UK, low-deposit mortgages are popular among first-time buyers who struggle to save for a large deposit.
According to data from the UK's Financial Conduct Authority, in 2020, over 60% of new mortgages were taken out with a deposit of less than 20%.
Low-deposit mortgages often come with higher interest rates and fees compared to traditional mortgages.
The extra choice is a boost for first-time buyers, although house prices and mortgage rates are higher than they were for much of the last 17 years. Borrowers able to offer a deposit of 5% now have 442 mortgages to choose from, up from fewer than half that total two years ago.
However, competition is tough, with homes typically listed for just over a month before a sale is agreed. According to separate figures from property website Zoopla, sales were agreed on half of homes within two months of being listed, and it may take another four to six months to complete the sale.
The property market refers to the buying, selling, and trading of real estate properties.
It is a significant sector in many economies, with a substantial impact on economic growth and development.
The property market can be influenced by various factors such as interest rates, government policies, and demographic changes.
According to recent statistics, the global property market has seen a steady increase in demand over the past decade, driven primarily by urbanization and population growth.
The UK housing market has been relatively settled in recent times, although buyers still need to navigate uncertainty over interest rates and changes to stamp duty in England and Northern Ireland. Borrowers able to pay a 10% deposit now have 845 products to choose from, up from 684 in April 2023.
The UK housing market is one of the largest in Europe, with a total value of over £13 trillion.
The average house price in the UK is around £230,000.
London is the most expensive region, with prices averaging over £600,000.
The North-South divide remains significant, with northern regions experiencing slower growth rates compared to southern areas.
According to data from the UK's Office for National Statistics (ONS), housing transactions have been steadily increasing since 2020, driven by low interest rates and government stimulus measures.
There was a flourishing choice of mortgages for those whose ability to pay a deposit is stretched, said Rachel Springall, from Moneyfacts. ‘A rise in product availability for aspiring homeowners is a healthy step in the right direction,’ she said. However, she noted that only 6% of all deals available to borrowers across fixed and variable mortgages had a deposit requirement of 5%, so there was still room for improvement.
While securing a mortgage is one thing, buyers also need to act relatively quickly when it comes to finding a new home. Homes in England and Wales spend an average of 36 days on the market before a sale is agreed. To complete a sale, sellers and buyers will typically need another four to six months, depending on the complexity of the transaction.
Homes in northern regions of England tended to sell faster than homes in the south, where prices are higher. The fastest sales were agreed for two-bedroom homes, at an average of 23 days, while homes with four bedrooms or more typically took an extra 15 days. Even so, the fastest selling, with an agreed sale taking an average of 19 days, had a north-south mix, with Manchester and the London borough of Waltham Forest hitting that mark.
Buyers have a lot more choice of homes for sale than a year ago. advised Richard Donnell, executive director at Zoopla. ‘Aiming too high on the asking price is likely to impact saleability and how long you may have to wait to agree a sale.’
