With a recent boom in house sales and house prices, it can be a tricky time to be a first-time buyer. If you’ve struggled to get a low-deposit mortgage, you’re not the only one.
As the UK economy continues to feel the impact of the coronavirus, many lenders have become more risk-averse and have withdrawn many of their low-deposit mortgages. Without them, it can be hard for first-time buyers to get onto the property ladder.
Although some lenders have begun to re-introduce low-deposit mortgages, the demand for them has been so high that they’ve generally been forced to withdraw them again quickly.
If you’re looking to secure one of these mortgages, read on to find out why it’s essential to be prepared for when they become available.
Many banks have withdrawn their low-deposit mortgages
The increasing value of house prices means that securing a high loan-to-value mortgage is crucial if you’re a first-time buyer and you want to get onto the property ladder.
LTV, or loan-to-value, is the ratio of mortgage to property value. For example, if you are buying a £100,000 house with a £10,000 deposit, you would need a 90% loan-to-value mortgage.
A high LTV mortgage can be a great way for first-time buyers to get onto the property market – but they’re currently hard to find.
As the UK economy reels in the wake of the lockdown caused by the coronavirus, many banks have become more cautious about offering low-deposit loans to prospective buyers.
According to a report from consumer advice group Which?, nine out of ten high LTV mortgages have been withdrawn from the market since March.
One of the most recent banks to withdraw their range of 90% LTV mortgages was HSBC, who was one of the only high street banks to continue to offer these products throughout the coronavirus crisis.
There are several factors that have caused banks to withdraw their high LTV mortgages, but one of the main reasons is the potential risk of a fall in house prices.
Experts predict a rise in unemployment in 2021 as the coronavirus continues to impact the UK economy, which may result in a fall in house prices.
The risk of negative equity, when the total amount borrowed is greater than the value of the house, has caused banks to become more hesitant to offer mortgages. This is particularly true for high LTV mortgages where a potential fall in property value poses a higher risk of negative equity.
As of 28th September, Nationwide is the last remaining member of the ‘big six’ mortgage lenders that is offering low-deposit mortgages as a part of their core mortgage range, albeit with stricter criteria than before.
Some lenders are still offering low-deposit mortgages but only for short periods of time
Thankfully for first-time buyers, some lenders are beginning to offer a limited number of low-deposit mortgages. However, the demand for these products is so high that they are generally being forced to withdraw them quickly.
Several weeks ago, TSB announced it was launching a new five-year fixed-rate mortgage for first-time buyers, available up to 90% LTV. However, the product was in such high demand that it was withdrawn after only 24 hours.
TSB were not the only lender to act in this way. Accord (part of the Yorkshire Building Society) also offered a similar product which was withdrawn within the first two days of it being offered.
To prevent the limited time frame from causing buyers to rush into a purchase, the criteria set by lenders has also become stricter. For example, lenders are taking measures such as placing greater emphasis on the prospective buyer’s job security or implementing a limit on how much can be borrowed.
If you want to make the most of these limited opportunities, it’s important to be prepared for them, since they’re being snapped up quickly.
Speaking to a mortgage broker is essential if you want to take advantage of the sales
If you want to take advantage of these products before they’re withdrawn, it’s important to be prepared so you can be in a position to act quickly.
One way you can prepare is to make sure you look after your credit. When applying for a mortgage, your credit rating plays an important role in determining how likely a lender is to approve your loan, and at what rate of interest.
There are many ways to improve your credit, such as registering on the electoral roll, but one of the most important ways is paying your bills on time. According to credit bureau Experian, your credit history is the most important factor used when a lender is determining your credit score, so remember to keep on top of your credit card payments.
Another way to prepare for applying for a mortgage is to make sure you have the deposit you need readily available. If you do get a chance to apply for a mortgage that may get quickly withdrawn, the last thing you want is to have to waste time scrambling to raise the funds for a deposit.
Finally, one of the most important things you can do to prepare is to speak to a mortgage broker before you begin applying.
Many low-deposit mortgages are only available through a broker and, without one, you may not be able to get the chance to apply for them before they are withdrawn.
Furthermore, a broker has the expertise and experience needed to help you to secure the best possible deal for your mortgage. They can also take much of the administrative burden from you when handling the application, making the process easier and faster.
Get in touch
If you want to put yourself in a great position to buy, we can help. Please get in touch by email at email@example.com or call us on (0207) 808 4120.