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There are currently some great looking deals available for buyers with smaller deposits, but it's not so much that rates are falling for those with 5% or 10% to put down, more that rates are rising for those with larger deposits, making the gap between the two narrower than before. This is mainly due to lenders choosing to move away from the ultra low rate deals for those with bigger deposits; either due to the cost of the underlying funds to the lender rising to price in a future base rate increase, or because they have now fulfilled the levels of business they wanted on those deals. The Mortgage Guarantee Scheme, which saw the Government underwrite some of the lenders liability and so encourage them to lend to customers with a 5% deposit, has not had a huge take-up. We have however seen a lot of lenders launch 5% mortgage deals - so why do those two facts not seem to marry up? Two factors in the main: 1) Many lenders were already looking at launching back into the 95% mortgage market at that time anyway, so we'd have seen the return of 5% deposit deals even without the Government intervention. 2) The Government scheme is quite expensive, so many lenders have chosen to take on the full liability of the lending themselves to keep their offering competitive, rather than take the extra security of the Government scheme and have to have more expensive rates because of it.

Article 1 With well over 300,000 property buyers purchasing their first home in the UK each year (statistica.com) first time buyers make up a huge proportion of property sales, and mortgage lenders are not shy to compete to win that business. Lenders are acutely aware that first time buyers struggle to save a large deposit, so focusing on the 5% deposit market makes great business sense, with many of those buyers also opting for 5 year plus fixed rates to provide security of payments over the longer term. This is great news for budding home owners as they can benefit from the keenly priced mortgage rates the healthy market competition brings. Whilst an increase to the Bank of England base rate is widely predicted, markets are forward looking, and most mortgage lenders have already priced an increase into today's rates. As such we don't expect 5% deals to disappear just yet, but a couple of consecutive increases from BoE could increase the pressure on mortgage lenders to raise interest rates, which might price out some aspiring home owners. Article 2 The mortgage guarantee scheme was strikingly underwhelming. It generally failed to open up property ownership for the restricted masses. Reason being, although a 5% deposit is possible, potential buyers still need to have a significantly high income to afford a property due to income multiple restrictions the scheme imposes. The average price of a property in the UK has increased by more than 10% in 2021, and earnings levels simply have not kept pace. As such many first time buyers still find themselves increasingly priced out of home ownership in the UK. Another issue is the Mortgage Guarantee Scheme has just not been competitive enough. On my last check there were 6 high-street lenders offering mortgages under the scheme, but based on purchasing a £300,000 property on a 5 year fixed rate, only 2 of those lenders featured in the best 15 deals. Simply put, alternative mortgage lenders have provided buyers with better value for money, and in some cases the option to borrow more money overall.

The market right now is as good as it's ever been for first-time buyers on the mortgage front; as long as they are creditworthy borrowers and have secure employment, lenders are happy to lend, and the 5% & 10% deals are competitive as more lenders have returned to this space and will be offering competitive deals to balance the risk on their lending over the past 12 months as some lenders have had super competitive deals for those with large deposits so they are looking to add more first time borrowers to their books. The Mortgage Guarantee Scheme which meant the movement would underwrite some of the lenders liability has not had a huge uptake as many lenders were already looking to come back to the market with smaller deposit products and the government back products where not only at times more expensive borrowers still have to be credit worthy so there was no real benefit.

The rates of 95% mortgages are incredibly low right now, and we can only put it down to market forces driving this; after all, it's imperative that lenders get excellent quality customers at high loan-to-value limits, and as such, they use rate to entice those younger borrowers who they hope will be long term customers. There's currently a 2 year fixed rate at 95% LTV at 2.37%, which is astounding, and a 5 year at 2.85%, which is unbelievably cheap for first-time buyers with a 5% deposit. However, with a base rate rise predicted this month, these deals aren't likely to be about for long, so as it's winter get your ice skates on pronto! It's not surprising that only a handful of people have used the Mortgage Guarantee Scheme. In reality, lenders were preparing to return to the 95% market anyway. Therefore it was never going to be the fix-all it was trumpeted as. If the government is serious about helping first-time buyers, they should start with rent controls. We know that getting the deposit together is the biggest challenge for almost all first-time buyers, and anything which makes it easier and quicker would deliver the biggest bang for their buck. 100% mortgages could make a comeback if the government can design a scheme that protects lenders. It would need stringent criteria; however, I suspect it would be incredibly popular with first-time buyers and would give the market a boost where it needs it most.

The real issue with 95% Loan to Value mortgages is that credit score and underwriting requirements remain very strict. This is shown by the relatively low impact of the government Mortgage Guarantee scheme, which clearly hasn't been enough for lenders to relax lending criteria sufficiently. Government schemes and lower rates aren't much good to any borrower who still can't get the mortgage they need.

I was shocked to see how few of the government back 5% deals had been done. Only 812, and half a dozen of those were for my ow clients! That being said, there are quite a few lenders doing 5% deposit mortgages without the government backed scheme. These have often been better deals that those with the government guarantee so there are more 5% deposit applications than this data suggests. Have to question if the policy is really needed when so many other lenders were willing to lend without the government guarantee though. For example smaller lenders like the WestBrom Building Society have offered 5% deposit mortgages to some of my clients, even with a default and CCJ in the last few years, all without the government guarantee scheme being used too. Lenders are a lot more confident that I believe the Government realised when they drew up this latest scheme. I work almost exclusive with FTBs and one thing I have noticed over the last 24 months is that many people are placing larger deposits than originally intended, and by choice! They've told me that it's been easier to save over the lock downs. Perhaps that's one positive to come out of all this mess.

"The government schemes often sound great in the cabinet room, but in reality do not help the people they were intended for. The government needs to stop creating an artificial housing market, allow prices to find their natural equilibrium, and things will start to take care of themselves."

There are a few reasons fixed rate deals for first time buyers are so low. Lenders are awash with cheap cash thanks to the huge amount of quantitive easing by central banks during the pandemic. Another factor is the lenders need first time buyers to support the mortgage market generally. Without them, everything stalls. And finally, with rates so low, borrowers naturally want to fix, which is driving fierce competition amongst lenders. I suspect this as good as it gets though. Interest rates are likely to rise in the near future to combat inflation, with mortgage rates increasing soon after.