Low deposit mortgages at highest level for 11 years

The share of mortgages advanced to those with deposits of less than 10% of the property value has reached its highest level since 2008, according to the Bank of England. More than one in 20 mortgages (5.5%) offered to borrowers between April and June this year went to those borrowing more than 90% of the property value, the Bank said, the highest share since the financial crash. The proportion of lending at high loan-to-income (LTI) ratios, whereby borrowers take out loans for more than four times the value of their annual income or three times their annual income if taking out a joint mortgage, was 46.1% in the second quarter of 2019, 0.7 percentage points higher than a year earlier.Higher loan to value mortgages more affordableLow interest rates combined with growing competition between lenders mean that mortgages for borrowers with small deposits have become more affordable. Homebuyers who in previous years might have struggled to get on the property ladder with only a 10% deposit now have a much wider choice of deals to pick from at competitive rates. According to research by financial website Moneyfacts the number of mortgages at a maximum 90% loan-to-value has increased from 762 in August 2019 to 774 now. The total number of mortgage deals at a maximum 95% has fallen slightly over the same period, from 391 deals in August to 380 this month. The average five-year fixed rate for a borrower with a 10% deposit is currently 2.95%, rising to 3.64% for those with a 5% deposit.Bigger deposits provide access to more ratesAlthough there are plenty of mortgages available to borrowers with only a 5% or 10% deposit, building a bigger deposit will give you access to an even wider choice of deals. You’ll also benefit from lower mortgage rates because lenders consider homebuyers with bigger mortgage deposits a lower risk. Building a sizeable deposit can be challenging, however, especially for first-time buyers who often spend the majority of their income on rent. There are ways to boost the amount you save, for example, by making use of government-backed savings schemes, where the government will top up any contributions you make when you buy your first home. Find out more about how these schemes work and how much you’re likely to need in our blog ‘What first-time buyers should know about saving for a deposit.’