Deposit sizes are falling, but slowly
Figures just out show that mortgage lenders have started to relax slightly the requirements they need for granting a home loan. This will, at long last, take some of the pressure off those struggling to raise a large deposit.
Two-thirds of mortgage deals still require borrowers to put down a deposit of at least 25%. But figures from the financial information service Moneyfacts show a recent rise in the number of deals demanding smaller down-payments.
The total number of mortgage deals has risen by 7% in the past month, with more needing only a 15% or 20% deposit.
A number of mortgage providers are slowly reducing their strict criteria and are increasing the number of products available to those that can raise a 15% deposit, although at a higher initial interest rate.
As lenders find the pool of customers who can put down a 40% deposit is shrinking, they are being forced to ask for smaller deposits.
A year ago, with the contraction of the property market gathering pace, more than half the available mortgages still needed a deposit of only 10%, or even less.
But last autumn, mortgage rationing by the UK’s banks and building societies became much more aggressive. By the end of the year the once-traditional 10% deals were rare and there are now just 96 of them.
And by last December more than half of all home loans needed at least a 25% deposit. However, this year has seen some relaxation by the lenders.
What we have seen over the past few months is a change in lenders offering their best interest rates at 70-75% loan-to-value rather than 60%. The number of deals needing a 15% deposit has risen, from 209 at the start of last December to 272 now.
And the number of 20% deposit loans which are available has gone up from 105 to 143 in the past month.
Banks consider a 75% loan to value as a conservative benchmark since it is generally where they see themselves getting their money back if a property is repossessed. With more mortgages becoming available at higher loan-to-values it looks like the banks are regaining some confidence within the housing market.
