First-time buyer demand surges but options are limited

The options for first-time buyers who do not have large deposits are diminishing because of the pandemic's impact. Although viewings and sales are now permitted, and there’s a stamp duty holiday on homes up to £500,000, the landscape is challenging for those trying to get on the property ladder without a big enough deposit.

The demand from first-time buyers is insatiable, with at least one mortgage broker reporting an increase in first-time buyer applications of more than 180% in the last two months. However, many have had their applications declined because lenders have pulled their high loan-to-value (LTV) products.

This time last year, there were almost 150 products available for buyers with a 5% deposit. Today, you can count them on the fingers of one hand. Currently, most banks and building societies ask borrowers for a minimum deposit of at least 15% right now. According to Nationwide's house price index, the average cost of a home in the UK is £218,902, which means that a borrower will have to come up with a minimum deposit of at least £32,835.  

One of the reasons for the withdrawal of high LTV mortgage products is that lenders say they want to help protect homeowners from a possible return to negative equity. This happens when someone takes out a mortgage with a small deposit, and when house prices fall, the balance of the mortgage is higher than the value of the property. However, economists are divided on how much house prices will be affected by the coronavirus crisis.

Green Shoots

It is not all doom and gloom at the moment. While undoubtedly in a state of flux, there are signs that the property market is picking up. In addition to increased demand for homes, interest rates are still at all-time lows, which means there are fantastic deals out there for some people. Also, Nationwide and Coventry Bank recently announced they're bringing back 90% mortgages.

The market may well be precarious, and anything could happen, but if the green shoots of recovery continue to sprout, lenders may start to bring back their 95% LTV mortgages slowly.

August 2020