Banks Withdraw 90% of Low-Deposit Mortgages


May 2020

Banks Withdraw 90% of Low-Deposit Mortgages

Mortgage lenders have withdrawn nearly all of their highly leveraged mortgages as the coronavirus crisis roils the economy and freezes the housing market.

Lockdown measures and economic uncertainty have thinned the number of all mortgages on offer. The total number of mortgage deals has fallen by over half (51%), from 5,222 at the beginning of March to just 2,566 in May, according to data from Moneyfacts.

Tracker mortgages have been hit particularly hard. More than third vanishing from the market within just days of the Bank of England cutting the base rate to just 0.1%.

Additionally, stay-at-home orders have slowed the property market to a crawl and prohibited in-person mortgage valuations. While lenders are still issuing mortgages, using automated or desktop valuations, these are seen as higher risk. Lenders are particularly worried about using automated valuations for riskier low deposit mortgages and many have culled their range of high LTV (loan-to-value) deals.

While there were 431 fixed-rate 90% LTV mortgages available in March, just 35 remain today. Among 95% LTV mortgages, just 37 remain, of the 411 on the market before lockdown began. As products have been suspended, rates on highly leveraged mortgage products have inched upward, while average mortgage rates have fallen to their lowest since 2007.

But first-time buyers don’t need to despair yet. The property market reopened in England at the beginning of this week and with the resumption of in-home valuations, low deposit deals may return to the market.

Before the recent upheaval, low deposit mortgages had only just rebounded, after being circumscribed in the wake of the financial crisis in 2008-09. Banks were offering 336 95% LTV mortgages last summer, up from just 149 five years before. Interest rates on these mortgages also dipped, from an average of 5.35% to 3.25% in the same time period.

Some banks were even inching back into the no-deposit mortgage market, with Lloyds launching its a 100% LTV Lend a Hand mortgage in January 2019 and Halifax joining with its Family Boost mortgage in September. While both mortgages technically have a 100% LTV ratio, they required family members of the borrower secure the loan by depositing 10% of the purchase price into a bank account. Both mortgages have now been closed to new applicants.

Highly leveraged mortgages proved popular with first-time buyers struggling to scrape together the average deposit of £33,000. Mortgages with LTVs higher than 90% constituted 18.7% of lending in the first three months of 2019—higher than at any time in the previous decade, Bank of England figures showed.