The number of low-deposit mortgages on the market has rapidly dropped in the past few months as banks have sought to limit their risks during the pandemic’s economic fallout.
At the beginning of March, borrowers would need a 10% deposit in order to access any one of 779 deals on the market, according to a study by Moneyfacts.
However, just six months on and after the prolonged lockdown period, the choice of 10% deposit loans had plummeted to just 60.
Banks and other specialist lenders are tightening up their lending criteria, as they fear defaults during the recession.
Some bigger banks have already confirmed that they are not prepared to accept any mortgage applications from people who are on furlough without any confirmed date for their return to work.
Buyers Need Helpful Information About Mortgages
The mortgage squeeze will be a particular challenge for first-time buyers, who tend to have smaller deposits. Moneyfacts spokesperson Rachel Springall said that this situation would be extremely frustrating to would-be buyers caught in a renting trap and unable to secure a mortgage to buy a house.
She said that there had been hundreds of mortgages suitable for first-time buyers in March, but that there were now very few, especially for those would-be buyers that only had 5% deposits in savings.
A ‘Sign of the Times’
The latest lender to pause all 90% loan-to-value deals has been HSBC. One broker described the move as a ‘sign of the times’.
Trinity Financial explained that mortgage lenders would need to balance their books as the recession began to bite, and that would mean reducing the number of riskier mortgages. If the value of houses falls, that puts first-time buyers into immediate negative equity.
Those borrowers who are self-employed are also being asked to provide a greater level of information, including accounts and bank statements, as part of their application. These borrowers are in particular need of helpful information about mortgages.
There is some good news, however, as mortgage lending overall has picked up since the original lockdown ended. Many people are trying to organise mortgages in order to benefit from the stamp-duty holiday, and the market has seen a healthy number of sales agreements.
However, the mini boom is not expected to sustain itself as job losses begin to bite and as government subsidy schemes are concluded.