First-time buyers face tiny mortgage options

First-time buyers without a sizeable deposit are left with just 36 mortgage deals on offer.

There are now 80 per cent fewer mortgage deals than a year ago for first-time buyers wanting to borrow over 90 per cent of the value of a property, data from online mortgage form mform.co.uk show.

To qualify for one of the best buy mortgage deals on the market, a 20 per cent deposit is now required – meaning first-timers have to have £37,000 in the bank.

The average first-time buyer now places a 12 per cent deposit – facing mortgage rates – and having to put down a £15,000 deposit.

Darren Cook, mortgage expert at Moneyfacts.co.uk, said: "This time last year, 74.2 per cent of the mortgages were available for borrowers with a deposit of ten per cent or less; today that has dropped to 29.2 per cent.

"The market for these borrowers was extremely competitive, not only with first-time buyers but also second time buyers who looked to climb the property ladder."

As a result of the crunch on first-time buyer mortgages and squeezed affordability levels – as property prices have soared in comparison to wages in recent years before current correction – just 109,900 loans were issued to first-time buyers in the last six months compared to 180,300 over the same period last year.

Francis Ghiloni, at mform, said: "It’s easy to see why so few have bought in the last six months.

"There’s little availability when it comes to generous loan-to-value (LTV) ratios and the few lenders still offering above 90 per cent tend to charge a little extra to cover the cost of the increased risk of loss in the event of a forced sale."

Mr Cook explained the big difference from last year is that mortgage lenders are no longer pricing to be competitive, but are setting their rates on the risk borrowers represent.

“Lenders are focusing much more on risk. They are making less products available to borrowers with a small deposit and making the few that are available much more expensive," he said.

In the last few days a number of lenders including Northern Rock and Yorkshire BS have increased rates on their 90 per cent LTV products.

"As house prices continue to fall, lenders may be worried that before the deal period ends, these borrowers may fall into negative equity, which poses a threat to the value of their recoverable security."

Mr Ghiloni's advice to first-time buyers was "to sit tight and build your deposit".

"This way when you do apply for a mortgage you’re more likely to avoid the hefty fees which push up the true cost of these mortgages."