As a result of the recent pandemic, lots of lenders have made changes to the products (range of loan types and interest rates) available. The biggest change you may have seen is the removal, or reduction in the number of mortgages available to people with only a 5% or 10% deposit.
So why is this?
There are two key factors driving this change. The first is the concern over house prices. During the lockdown house prices, for the most part, remained fairly constant, however lenders are anticipating a slight drop. If this drop is more than 5% of the house price, and you only put down 5% as a deposit, then you could well end up owing more than the house is worth. This is called being in Negative Equity – and lenders do not like that. So, to protect themselves against it, most lenders have removed the option to borrow this much money until there is more certainty around house prices.
The second factor is the concern over income. Whilst currently 1 in 4 people are on the governments furlough scheme and so are technically still employed, there is some anticipation over what will happen when the furlough scheme ends. Banks and lenders will rightly be cautious about letting people over commit or take a “hight risk, high loan to value” mortgage if there is uncertainty in the job market.
So what options do you have?
If you’re a first time buyer and have a family member willing to help you by opening a savings account with Barclays, you may qualify for their Family Springboard Mortgage with only a 5% deposit, so long as your family member can deposit a sum of money equal to 10% of the property value.
There are some options for people with 10% deposits – most notably with HSBC, however they are limiting the number of applications they will accept each day at this loan to value. The reason for this is simply to protect their customer service standards. With so many people applying for a mortgage at this level with them, if they accept too many, they won’t be able to appropriately or effectively handle your application which will cause problems further down the line. For the lucky ones who have managed to have their application accepted, their applications are moving smoothly and quickly through the process.
So what do we think?
At My Simple Mortgage we completely understand that one of the hardest parts of buying a house is being able to provide a big enough deposit – especially if you’re a first time buyer who is trying to save AND pay rent. However if you are fortunate enough to be able to put down a bigger deposit – around 20% – the mortgage market is alive and well with these products and you’ll find some really competitive rates, often with lots of freebies thrown in such as reduced fees and free valuations.
The government’s Help To Buy scheme may also be a useful solution to you if you buy a newly built home. With them providing 20% of the deposit by way of a guaranteed loan, along with your 5% deposit you’ll only need to borrow 75% of the property value, again, giving you far more options with mortgage lenders.
Ultimately, the less you borrow, the cheaper your house will be to buy as you’ll pay less interest over time, so whilst the market doesn’t have the full range of options it used to, the positive is that it may just afford you the time to save a little more, and borrow a little less.
If you have any questions, or just want to know where you stand though, you can always call the team at My Simple Mortgage who will be more than happy to talk you through all your options.