Choice of low-deposit mortgages increases sharply as public calls for return to 100% lending

Posted 6 January 2016 by Keith Osborne

More lenders are respondng to buyer demand for 95% mortgages but who will be first to revert to zero-deposit home loans..?

The choice for mortgages for buyers with a small deposit rose sharply in 2015, according to new research by a mortgage insurer. The latest figures show that there are 260 products available for consumers looking to borrow 95%, a rise of 84% year-on-year.

The research comes as a major survey reveals that half of homebuyers in the UK would welcome a return to 100% mortgages.

The latest Genworth/Moneyfacts Mortgage tracker has revealed that the choice of 95% mortgages increased by 119 over the last year, from 141 in November 2014 to 260 a year later. According to the research, 68 new products were added in the three months to November alone.

There are now more than six times as many loans for consumers with a 5% deposit as there were in September 2013, before the ‘Help to Buy 2’ (mortgage guarantee) scheme was launched. The choice of products is now at its highest level since the recession.

Simon Crone, Genworth vice-president for Mortgage Insurance Europe, says: "There is little doubt that the Help to Buy mortgage guarantee has played an important role in rejuvenating the high-LTV market. However, beneath the surface, it remains a long way short of full health and there is a danger that what we are seeing is a temporary restoration of appetite from lenders thanks in no small measure to government efforts."

Half of homebuyers would welcome a return to 100% mortgages

The Genworth research comes as a new survey reveals that buyers would welcome a relaxation of the lending rules. A new poll of 2,000 people has found that half of those who plan to buy a home within the next two years are in favour of a relaxation of lending criteria, with 25- to 34-year-olds the most keen.

100% mortgages were a casualty of the global financial crisis and 2014's Mortgage Market Review tightened the rules on the size of deposit a borrower needs to get a home loan. This has meant that the average first-time buyer deposit is now around 16%.

"Buyers would welcome a return to 100% LTVs and many lenders would like to offer them," adds Gareth Shilton, spokesperson for Ocean Finance, the lender who commissioned out the research. "Many people trying to get on to the housing ladder struggle to get enough cash together for a deposit, then house prices rise further, and they find themselves stuck on a never-ending treadmill.

"The Mortgage Market Review states that lenders must ensure buyers can afford a mortgage. So it’s frustrating for those buyers who are able to prove they can afford a mortgage, but can’t raise a deposit because of their rent and living costs. It would be a brave lender who is the first to go back into the mass market with 100% LTVs, although others would no doubt follow suit.”

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