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For many first-time buyers, getting their foot on the property ladder can feel like an impossible dream. However, the good news is that there are a growing number of mortgage deals that require only a small deposit, or no deposit at all.
Metro Bank is the latest high street lender to launch a deal that allows eligible first-timers to borrow up to ۱۰۰% of the value of a property. Home loans that let people borrow ۱۰۰% have been making a bit of a comeback – they were once fairly commonplace but were axed after the ۲۰۰۸ financial crisis.
The Metro deal comes hot on the heels of a heavily promoted new first-time buyer mortgage from Lloyds that requires a minimum deposit of only £۵,۰۰۰.
Over the past year or more, banks and building societies have been relaxing their affordability rules and becoming more creative with their mortgage products.
However, comparing these these deals isn’t always straightforward because they all work in slightly different ways, and eligibility can vary between lenders, says David Hollingworth at the broker L&C Mortgages.
In May, Lloyds launched its mortgage with a minimum deposit of £۵,۰۰۰, which is equivalent to a maximum loan-to-value of a whisker over ۹۸%. It is a five-year fixed deal with an interest rate (at the time of writing) of ۵.۸۹%. However, it is only available on homes worth up to £۳۰۰,۰۰۰, which means it probably won’t be an option for many buyers in pricier areas such as London, or for some considering a larger property. This deal is also available via the Halifax and mortgage brokers.
While Lloyds is the largest lender so far to go above ۹۵%, it is not the first. Santander has a similar deal that also lets people borrow up to ۹۸% of a property’s value. Again, the deal is a five-year fixed-rate loan (currently ۵.۴۹%), but in this case you can borrow up to £۵۰۰,۰۰۰, and the minimum deposit is £۱۰,۰۰۰.
Meanwhile, the Skipton and Yorkshire building societies have deals that allow people to borrow up to ۱۰۰% and ۹۹% of a property’s value respectively. The Skipton deal is aimed at current and recent renters and lets people borrow up to £۶۰۰,۰۰۰. It is a five-year fix with rates starting at ۵.۵۵%. The Yorkshire’s deal (again a five-year fix) has a maximum loan of £۴۹۵,۰۰۰ and a rate of ۶.۴۴%.
There are also more deals coming on to the market that enable people to boost their borrowing power with the help of a relative or friend. This type of mortgage is known as a joint borrower, sole proprietor (JBSP) loan. These let borrowers add extra people on to the mortgage without making them a legal owner of the property. The lender factors in all the incomes during the application – meaning you can usually borrow more than if you were taking out a mortgage on your own.
Some deals only allow you to add an immediate family member such as a parent; others will also accept other relatives and friends. However, with this setup everyone shares the legal responsibility for the mortgage payments, so this is not something to be entered into lightly.
Hollingworth says lots of lenders are able to offer JBSP as an option, and Doug Miller at the fellow broker Lansdown Financial Services says it has seen “a significant increase in demand” for JBSP mortgages as property prices continue to rise and affordability has become more stretched.
The new Metro Bank JBSP deal allows customers to borrow more than ۹۵% and up to ۱۰۰% of a property’s value, providing they have an immediate family member to act as the joint borrower in the event of missed payments or a change in financial circumstances. It is a five-year fixed deal with a maximum loan size of £۶۷۵,۰۰۰, but the rate is high: ۶.۹۹%.
This illustrates the fact that, in return for not having to put down a deposit, or only a very small one, you will typically have to pay a higher interest rate.
At the time of writing, those who can afford to put down a ۵% deposit – that is, those borrowing ۹۵% of the property’s value – could get standard new two- and five-year fixed-rate mortgage deals starting at about ۵.۰۵% and ۴.۹۵% respectively.
If you can stump up a deposit of ۱۰%-plus, rates will be even lower and you will have a bigger choice of deals.
Those buyers considering the low- or no-deposit need to weigh up their options carefully and may want to talk to a broker.
Some first-time buyers will want to keep saving for a deposit so they can obtain a better interest rate via a standard deal, Hollingworth says.
However, he adds: “For those who feel as if they are treading water paying rent, being able to put down as little as £۵,۰۰۰ [or in some cases nothing at all] could make home ownership a much more achievable option for them.”
* All product details and rates correct at time of writing
