Britain is a nation of homeowners – and for many people, taking the first or indeed the next step on the housing ladder is an important milestone to look forward to. But it’s far easier said than done to actually get on the housing ladder, and that’s down in part to the need to have a decent deposit.
This article will explore the role the deposit plays in the process, and what impact the pandemic has had on the mortgage market.
For many first-time buyers, an ideal scenario might seem like one in which the borrowing is high and the deposit is low, the tried and tested 5% deposit mortgage.
The reason why this is so appealing is obvious: it means that you have to save (and possibly rent, or live with family) for a shorter amount of time because your deposit can be accumulated in a far shorter period. This scenario is often described as a high “loan to value” arrangement.
Prior to the COVID Pandemic, this scenario was accessible and easy, but we are yet to see 5% deposit mortgages return to the market. Just a decade or so ago it was the case that people looking to buy a home could turn up at a lender and in some cases access a no-deposit, 100% mortgage. But when house prices went down during the financial crisis, people ended up trapped because they owed the bank more than their house was worth – a phenomenon called “negative equity”. Since then, it’s become the case that 100% mortgages are impossible, and now a deposit is essential. Thankfully the idea of having more equity in property has risen in popularity, and some new buyers now aim to wait and have a perhaps a bigger deposit than they need before they buy.
The impact of COVID 19
The COVID 19 pandemic has worked its way into almost all aspects of our lives, and the housing market is no exception. When it comes to deposits, banks have – at least for now – taken some of their highest loan to value products off the market. “While towards the end of last year it might have been possible for a borrower to get a mortgage with just a 5% deposit, it’s now almost impossible to do” says Simon Hamilton, Mortgage Director of Hello Mortgage. In fact, it’s becoming increasingly apparent that any deposit under 10% or perhaps even higher might not be enough.
This is an understandable move on the part of the banks because higher loan to value mortgage and remortgage options are often perceived as risky. In an economic environment in which some people might face losing their jobs, banks may consider it likely that defaults will occur and hence make more cautious lending decisions. For a borrower, this could be frustrating – especially if you were close to reaching your goal only to have the goalposts changed. However, it’s perhaps for the best in the long run, as it helps defend homeowners against price drops.
“It is no secret that some of the better mortgage deals, mainly within the Buy to Let sector, are available only to those with a lower LTV, typically 70%. This is largely due to risk. Small deposits are great for helping people get onto the property ladder, but its always better to have as low a loan to value as you can,” says Keith Ahmed, MD of Hello Mortgage.
We are starting to see more lenders offer low deposit mortgages, but are yet to see the return of the 5% mortgage, the new normal at the moment is a 10% deposit.
The mortgage market
What some potential buyers don’t realise, however, is that there is a whole “mortgage market” out there which is packed full of diversity. While it’s unlikely that any provider is going to be offering tiny deposit mortgages any time soon, it also remains true that lenders differ from each other in all sorts of diverse ways and each one has a different product offer.
If a person looking to buy a mortgage heads straight to perhaps the same bank they have their current account with, they will only receive products offered by that bank. This may not, for whatever reason, suit their circumstances. Their bank may not offer suitably higher LTV mortgages, for example, or their bank may have unfavourable eligibility criteria on some products like restrictions on self-employed applicants or those with bad credit. Their bank may also not be charging the most competitive interest rates, either. For a savvy mortgage shopper, then, the solution is often to opt for some unbiased and independent mortgage advice.
Using Hello Mortgage as your local broker
The professional you need if you’re looking for independent mortgage advice is a Hello Mortgage broker. Our job is to assess the state of the market and to find a mortgage deal that works for you, which is often more efficient than going it alone. At Hello Mortgage we have access to powerful market knowledge, comparison software and direct relationships with lenders which we use to find you the best possible mortgage deal. After doing an initial fact-finding with you your local Hello Mortgage broker we will be able to assess the market quite quickly – and to find a good deal with low-interest rates tailored to your needs.
Not many people realise that brokers all charge differently for their services. Depending on various factors, such as the value of the mortgage, complexity, or loan type. We keep it simple; all our initial mortgage advice is free. We do not charge any fees for sourcing you a mortgage, only if you take a mortgage that we have recommend to you, and even then, our fee is only payable on completion.
Using a broker is even more prudent than ever during the pandemic given that the mortgage market has changed so much in the last few weeks alone. Those who are worried about what the circumstances of their case might mean for their application, such as those who only have a 5% or 10% deposit or those with specific requirements like a buy to let mortgage, should speak to us about what their options might look like in the post-pandemic world.
In sum, then, the world of mortgages has changed so much in the last month or two thanks to the coronavirus crisis. It’s now the case that getting mortgages is a little more complex, and it becomes even more complicated if you’re an applicant with a small mortgage deposit or a circumstance that doesn’t fit the average mould. But by speaking to one of our local mortgage brokers near you, you can get up to date mortgage advice which reflects your own personal circumstances and helps you plan for the future, for free.
Hello Mortgage, really are the best mortgage brokers to have on your side, we are whole of market, impartial, local, friendly and are around at times that work for you.