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Best 10% deposit mortgages: What are the top rates for first-time buyers?

Mortgages needing 10 per cent deposits are continuing to return to the market, in a welcome move for first-time buyers.

Lenders have launched 117 new products since the beginning of the year, and 29 in the first two weeks of February alone, according to information website Moneyfacts.

These lower-deposit mortgages are popular with first-time buyers, but are also used by homeowners who have low equity for other reasons.  

Mortgages with 10 per cent deposits are most often used by first-time buyers

There are now 277 10 per cent products on the market, which is still far lower than than the 776 that were on offer a year ago in February 2020.

However, it is a big improvement compared with the 44 deals that were available in September 2020.

Most lenders withdrew their higher loan-to-value mortgages from the market around the time of the first national lockdown in mid-2020.

They cited worries about their capacity to deal with new applications when staff were working from home as the main reason, however there would also have been concerns about changes to people’s financial circumstances and the risk of negative equity.

Five new lenders have entered or re-entered the market since the beginning of this month, and 15 if you count both January and February.

First-time buyers with a 10 per cent deposit will also find more cashback offers on the market today, rising from 50 to 83 over the past month, available from 17 lenders compared to 12 in January. 

It is not all good news for those trying to get on the property ladder, though. 

While lenders have been slowly reducing their rates since they re-entered the market, they remain relatively high compared to other products in the market, as well as to 10 per cent mortgage rates pre-pandemic.

The average two-year fixed rate mortgage with a 10 per cent deposit now has an interest rate of 3.56 per cent, almost one percentage point more than in February 2020. 

While the five-year fixed rate equivalent at 3.68 per cent has dropped by 0.04 per cent since the start of the month, it is also 0.77 per cent above the February 2020 rate.

In contrast, those with 40 per cent deposits are currently enjoying rates of less than 1.2 per cent. 

And while the outlook is improving for those with 10 per cent deposits, there are still few mortgages available for first-time buyers with only five per cent to pay up front.

There are some products on the market, but most are only open to existing borrowers looking to remortgage, or require a guarantor.

Mortgage products available. Figures apply to first day of the month unless otherwise stated

Mortgage products available. Figures apply to first day of the month unless otherwise stated

Eleanor Williams, finance expert at Moneyfacts, said: ‘While average rates – historically often higher than those available in lower LTV brackets due to risk – are above where they were a year ago, those for whom the longer-term stability of a five-year fixed may suit their circumstances may be pleased to note this rate has reduced 0.04 per cent since the start of this month alone.

‘There are of course still hurdles for these borrowers to overcome. House prices inflated quite significantly last year – although early indications are this may be slowing in 2021 – and savings rates have continued to descend to rock bottom lows, making building a larger deposit difficult, as have high rental payments. 

‘But their options have been steadily increasing, and added to the news that the homebuyers using the current Help to Buy equity loan scheme have a further extension on the deadline for completions, there is hope that 2021 may see more potential home-buyers take that first step onto the property ladder.’ 

The best low deposit rates

Here are some of the best rates currently available to those with a 10 per cent deposit:    

Lloyds has a two-year fixed rate of 3.39 per cent with no fee. 

HSBC  has a two-year fixed rate of 3.44 per cent with no fee.   

Natwest has a two-year fixed rate of 3.48 per cent with no fee.  

Platform has a two-year fixed rate of 3.19 per cent with a £749 fee.  

Use our calculator to weigh up fees versus rates and find the best deal

HSBC accepting bonuses as income for applications 

In further evidence that mortgage providers are gradually broadening their horizons, HSBC said yesterday that it would begin accepting commission and bonuses as a valid form of income in mortgage applications again.

The lender made changes to its variable pay policy to allow income from commission and overtime, in addition to quarterly, half-yearly or annual bonus payments, to be used to support mortgage affordability. 

However, the most recent payment must have been received in 2021.

Michelle Andrews, HSBC UK’s head of buying a home, said: ‘We are all looking forward to normality returning, and the inclusion of overtime, commission and bonuses to support a mortgage application is one bit of normality that will be welcomed by many looking to move on to or up the property ladder.’

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