Page last updated at 14:17 GMT, Friday, 14 November 2008

Low-deposit mortgages evaporate

For sale signs
One analyst says house prices must stabilise for deals to return

Mortgage deals for people offering a 10% deposit have almost evaporated from the market, according to figures obtained by the BBC.

Only 66 deals of this kind are still available, compared with 586 three months ago and 1,197 in February.

The figures, from Moneyfacts, reveal how the dramatic financial downturn has almost killed off traditional deals for those without large savings.

Mortgage brokers say they will not return until house prices level off.

"The situation will get better some time, but property prices must stop falling," said mortgage broker Ray Boulger, of John Charcol.

Deals for those with only a 5% deposit have already all but disappeared, and now the trend is being followed for deals requiring a 10% down payment.

Mortgage squeeze

First-time buyers are likely to be particularly affected by the falling number of low-deposit deals, at a time when homes are theoretically becoming more affordable for them.

5% deposit - down from 1,126 deals to 35
10% - down from 1,152 to 66
15% - up from 198 to 228
20% - down from 216 to 189
25% - down from 449 to 421

The Council of Mortgage Lenders recently said that a growing number of young people were having to approach family members for financial help to get on the property ladder.

Moneyfacts' figures show that when house prices were at their peak a year ago, there were 1,152 mortgage deals available for those with a 10% deposit.

Six months later, the number had fallen to 664, before slumping to 66 on 13 November.

The move follows a trend already witnessed in offers to those with just a 5% deposit. The number of these deals collapsed from 1,126 a year ago, to just 269 six months ago, and down to only 35 now.


For those able to offer bigger deposits, notably those with significant equity who are remortgaging, the picture is far less dramatic.

I do not see the situation getting better in the short term
Ray Boulger, of John Charcol

Deals which specify a minimum 15% deposit increased from 198 a year ago to 228 now. There was only a slight drop over the same period in 20% deposit deals (from 216 to 189) and 25% deposit offers (from 449 to 421).

With the market shrinking rapidly, the higher-deposit deals are dominating the limited mortgage scene.

Mr Boulger said that lenders were still tightening their belts and so were likely to be rejecting more borrowers whom they considered to be at a greater risk of going into arrears.

"I do not see the situation getting better in the short term," he said.

Banks currently had a limited amount of money to spend, he said, and funding they had previously gleaned from people remortgaging during a booming property market had dried up.

The cost of lending between banks had dropped in recent days, but this in itself would not prompt the return of 10% deposit mortgages, he said.

Despite the expectation of more interest rate cuts by the Bank of England, there is more bad news for new mortgage customers without a large savings pot.

Aaron Strutt, of Chase de Vere Mortgage Management, said that tracker deals - linked to the Bank rate - were the most attractive options at present, but the majority are only being offered to those with at least a 25% deposit.

He said that the best tracker deal on the market on Friday was from HSBC at 0.99% above Bank rate, with a 799 arrangement fee. Yet, this was only available to those offering a 40% deposit.

'Pass it on'

The shock cut in the Bank rate by 1.5 percentage points to 3% was followed by a chorus of calls for banks and building societies to pass on the cut to those with standard variable rate (SVR) mortgages.

The mortgage market is closed to many first-time buyers

Some of the largest lenders passed on the cut in full to SVR customers the following day, but many still have not done so.

In a speech on Thursday, John Goodfellow, the chairman of the Building Societies' Association, said there were a range of issues specific to building societies that needed to be considered before any cut was passed on.

Primarily, this included striking a balance between savers and borrowers.

The traditional model of building societies is to fund lending from savers' deposits, and interest rates on these savings would be cut if the mortgage costs for borrowers dropped.

"More than half the funds invested in building societies are held by people over the age of 55," Mr Goodfellow said.

"Someone in a savings account earning an interest rate equivalent to the Bank of England base rate before last week with the interest rate reduction 'passed on' will now have a 33% reduction in their income."

He added that building societies were also "unfairly" facing a bill for the scheme that was compensating the customers of failed banks.


Lender SVR before BoE decision SVR after BoE decision Rate change (percentage points)
HBOS 6.50% 5.00% -1.5
Nationwide BS 6.19% 4.69% -1.5
Abbey 6.94% 5.44% -1.5
Lloyds TSB/ C&G 6.50% 5.00% -1.5
Northern Rock 7.34% 5.84% -1.5
Barclays 6.64% Under review
RBS 6.69% 5.19% -1.5
HSBC 6.25% Under review
Alliance & Leicester 6.94% Under review
Bradford & Bingley 7.09% 5.59%
(7 Dec)
Bristol & West 6.59% Under review
Britannia BS 6.30% Under review
Yorkshire BS 6.60% Under review
GE Money 10.39% Under review
Coventry BS 6.84% 5.34% -1.5
Standard Life 6.59% Under review
Clydesdale & Yorkshire 6.64% 5.14% -1.5
Chelsea BS 7.24% Under review
Skipton 6.45% Under review
SVR: Standard Variable Rate.
All changes on 1 December unless stated.

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