The number of deals on the market for buyers with just a 5 per cent deposit has dropped from 405 in February this year, to just 37 today, according to Moneyfacts.co.uk
UK first-time buyers will need bigger deposits if they want to get on the property ladder as lenders are pulling the best deals due to the coronavirus cash crisis.
The number of deals on the market for buyers with just a 5 per cent deposit has dropped by 368, from 405 in February this year compared to just 37 today, according to Moneyfacts.co.uk.
The number of deals that require a 10 per cent deposit has been slashed by 776 to 99 in the same time, while mortgages with a 15 per cent down payment has fallen from 666 to 204.
First-time buyers are more likely to be looking for a low-deposit mortgage meaning that a large chunk of these people may no longer be able to afford to purchase a home.
The impact of Covid-19 on the economy has led lenders to become more risk-adverse, with only a few such as Nationwide and Barclays, still offering such high LTV (loan to value) mortgages.
Barclays pulled all deals that required less than a 40 per cent deposit immediately after lockdown was announced, only to bring them back two weeks later.
Halifax pulled all similar deals around the same time but last week it relaunched a range of 15 per cent deposit deals.
Under lockdown rules, only house purchases where the contracts have been signed and buyers and sellers show no signs of illness can go ahead.
The restrictions pose an issue for first-time buyers who already had a mortgage offer in place but need to complete the purchase before it expires, typically within three months.
If they don’t take advantage of the offer before it runs out, they will then have to apply again but the low-deposit deals may have been pulled in the meantime, leaving them locked out of the property market.
Most banks are now offering a three month extension on mortgage offers, after banking trade body UK Finance stepped in.
First-time buyers may still be able to take advantage of Barclays Springboard zero-deposit mortgage though, as long as a family member is prepared to stump up the equivalent to 5 per cent deposit in a three to five-year fixed-rate savings account as a guarantee.
Eleanor Williams from Moneyfacts.co.uk said: [First-time buyer] borrowers are more likely to be looking for a low-deposit mortgage product, which as a sector of the mortgage market has contracted significantly with many products being withdrawn at the moment.
Purchasing when requiring a higher loan-to-value product is also more likely to require a physical valuation, Eleanor said.
But Eleanor added that this will depend on the lender as some are moving towards accepting automated valuations, which are made without viewing the properties.
Not all is lost – deals are still being processed although buyers must let their lenders know if their situation changes once out of lockdown, such as if you’ve been furloughed or lost your job.
Some banks and building societies are also returning to the market with high LTV deals and rates are low for those who are eligible.
Eleanor adds: Therefore, buyers may wish to start the process and speak to their lender or an independent, qualified advisor, in order to lay the groundwork to put themselves in a strong position to move forward when the market rebounds.
Homeowners who are struggling with household bills due to coronavirus can ask for a mortgage payment holiday of up to three months.