Choice of 95% mortgages increases by 400% since Help to Buy

Posted 17 June 2016 by Nick Parkhouse

Since the introduction of the government's mortgage guarantee scheme, the number of mortgages requiring just a 5% deposit has rocketed to over 270...

The choice of mortgages for borrowers with a 5% deposit has increased by 400% since the introduction of the Help to Buy scheme three years ago.

Back in 2013, there were just 56 mortgage deals available to borrowers who wanted to borrow 95% of their home's value. Now, partly thanks to the government initiative, there has been a five-fold increase in the choice of deals available.

Choice of 95% mortgages increases significantly

Help to Buy brochure coverNew research has found that the number of mortgage deals on the market for borrowers with a 5% deposit has increased significantly in the last three years.

When the Help to Buy mortgage guarantee scheme was introduced in October 2013 there were just 56 mortgages available at 95% loan-to-value. Now, financial analysts Moneyfacts say that there are 271 such deals available - a 400% increase.

While the government initiative has been partly responsible for a massive increase in the choice of mortgage deals, specific Help to Buy products may not always be the best option, says Charlotte Nelson, finance expert at Moneyfacts. She says: “With the initiative set to end soon, borrowers who are contemplating a Help to Buy mortgage should perhaps cast their net wider and search the whole of the market. 

"Lenders outside of the scheme are now actively competing in this key area, so there could be better deals found elsewhere. For instance, the best five-year fixed-rate mortgage at 95% loan-to-value from the Help to Buy scheme is priced at 4.48% today, but the best rate available overall stands at 3.79%.”

Experts said that high loan-to-value mortgages could become cheaper, as there is strong competition between lenders for first-time-buyer business. Mortgage expert Andrew Montlake says: "Lenders do need to continue to address this area because buyers just can't get the deposit together that they need for a smaller mortgage.

"I do think lenders will still be able to offer those products, and the 90% and 95% mortgages will become the next battleground as rates for 60% mortgages have hit rock bottom. There's still room for those higher value mortgages to drop further."

While the choice of deals is great news for first-time buyers, not everyone is benefiting from the scheme, as we see next.

High property prices in the South East mean borrowers need a higher deposit

Help to Buy is great is you're a borrower with a 5% deposit. However, the Daily Telegraph reports that these mortgages are often not accessible for those in the South and South East. This is because first-time-buyers must produce a much larger deposit as high property prices prevent them from using larger mortgages. 

First-time-buyers in London had an average mortgage size of 77%, compared to 82% in the North West and 84.5% in Yorkshire. 

Credit agency Moody's also said that Londoners borrowed more relative to their income. Around 70% of first-time buyers borrowed more than 3.5 times their income, compared to 54% of veteran buyers. 

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