First-time buyer mortgages with a 10% deposit make a comeback – but not if you want to buy a flat


FIRST-TIME buyers with a 10 per cent deposit can start to get mortgages from major lenders again, but you may find you can’t buy a flat.

Nationwide relaunched its range of mortgages today for borrowers needing a 90 per cent loan, while Yorkshire Building Society’s Accord brand has also come back at this rate.

Nationwide is among the lenders to restart its 10 per cent mortgages from today

Nick Morrey, mortgage expert at broker John Charcol, told HOAR: “HSBC is still offering mortgages at 90 per cent and Accord came back recently.

“Coventry also came back at this level but only for two working days.

“The problem is some lenders are really struggling as they’ve got so many applications, while others want borrowers to have their own skin in the game so they know they can ride out any financial storm.”

But Nationwide won’t let first-time buyers use the deals to purchase flats.

New builds are also out of the question, which means first-time buyers won’t be able to make the most of the government’s Help to Buy equity loan scheme.

Mr Morrey pointed out that Nationwide is also refusing to lend to first-time buyers whose entire deposit has been gifted to them; from parents, for example.

In addition, the loans have also been limited to those borrowing over a maximum of 25 years; which will bump up monthly repayments compared to taking out a longer deal – although you’ll save on interest in the long-run.

The building society says the value of flats and new builds can jump up and down more readily than an older house, particularly in a downturn, so it says lending on them is too risky.

If prices go down, for example, it could leave a borrower in negative equity where their property is worth less than the mortgage.

Only today, property portal Rightmove reported that asking prices are on the up after chancellor Rishi Sunak introduced a stamp duty cut earlier this month for England and Northern Ireland.

But lenders Halifax and Nationwide have already seen sold prices dip since the coronavirus crisis hit.

Mr Morrey told HOAR Nationwide is the only lender he’s aware of doing this right now, but he says some lenders introduced these stricter rules during the financial crash.

Why have lenders pulled low deposit deals?

The number of deals available for a 90 per cent mortgage has drastically fallen since the start of the coronavirus crisis.

Just 70 such mortgages were available at the start of July compared to 779 in March, according to comparison site Moneyfacts.

Lenders are cautious about borrowers’ finances due to Covid-19, while at the same time losing short-term cash from dishing out payment freezes and business loans.

Mortgage lenders have pulled deals with a 10 per cent deposit over the past few months

This has hit first-time buyers particularly hard as they’re more likely to have smaller deposits and therefore need to borrow more from the bank.

But while the number of deals available has since fallen further to 52 this week, it has crept up from 49 last week.

What are the best deals with a 10 per cent deposit?

The best deal for you depends on the type of mortgage you’re after, the term of the deal, and whether it comes with any fees.

Nationwide’s deals include a two-year-fix, a three-year fix, a five-year fix, and a two-year tracker, which follows the Bank of England’s base rate.

Rates vary from 2.49 per cent with a £999 fee for a two-year fix to 2.99 per cent with no fee for a three year or five year deal.

Of course, as with any mortgage you should always take into account both the rate and fee together and how much it’ll cost you overall over the term of the loan.

Moneyfacts places some of Nationwide’s new mortgages in its best buys; but they can be beaten.

On a two-year fix, for example, HSBC currently has the top deal at 90 per cent with a rate of 2.54 per cent and no fee, or 2.24 per cent with a £999 fee.

Always use a mortgage broker as well as mortgage comparison tools to find the best deal for you.

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