Our best advice to first time buyers

Borrowers benefit as low-deposit mortgage rates fall below 2%.

Mortgage rates for first-time buyers are falling as lenders compete for business from borrowers with low down payments. It is now possible to get a 90% mortgage with a rate of less than 2%, or a 95% mortgage with a rate of less than 3% – rates that seemed unthinkable just a few months ago.

Low-deposit mortgages are making a comeback.

Following the Covid-19 outbreak last spring, nine out of ten 90 percent and 95 percent mortgages were pulled from the market.

Nearly 18 months later, things are looking up for first-time buyers with small deposits, with the vast majority of lenders reintroducing low-deposit deals.

The 95 percent mortgage guarantee scheme, which was launched in April, resulted in a flood of mortgages entering the market, and rates have been steadily falling since then.

What exactly is the mortgage guarantee programme?

As you can see above, lenders have been gradually bringing back 90 percent mortgages since the end of last year, but there was little sign of 95 percent mortgages returning until April, implying that first-time buyers would need a deposit of at least 10% to buy a home.

Keeping this in mind, the government introduced a new mortgage guarantee programme. The scheme entails the government encouraging lenders to offer 95 percent mortgages by shouldering some of the financial risks, such as if a buyer defaults on their loan.

So far, the guarantee has been a success, with 189 fixed-rate 95 percent deals now available, up from just five at the beginning of March.

As a buyer, it makes no difference whether the 95% deal you choose is part of the scheme or not, so when comparing deals, make sure you consider all of your options – whether they are part of the scheme or not.

Ideal mortgage rates on 90% and 95% mortgages

The mortgage guarantee scheme has undoubtedly increased the number of options available to first-time buyers.

Rates on 95 percent mortgages have fallen significantly as lenders compete for business. In April, new deals were being launched with rates of just under 4%, but rates of less than 3% are now available.

How much money can I get with a low-deposit mortgage?

When taking out a 90% or 95% mortgage, you can typically borrow up to four and a half times your annual income.

For example, if you and your partner earn £50,000 combined, you should be able to borrow around £225,000 if you meet the other criteria that banks have in place. There are a few exceptions. Nationwide announced earlier this year that first-time buyers would be able to borrow up to five and a half times their salary on mortgages with a loan-to-value of up to 90 percent. This means that with a salary of £50,000, you could theoretically borrow up to £275,000.

If you’re not sure how much you can borrow or which lenders will offer you the right mortgage, it’s a good idea to consult with a mortgage broker.