Mortgage availability nears pre-pandemic levels amid spike in 5% deposit deals

A mortgage battle by banks and building societies means rates are falling and the number of deals available to UK borrowers is at its highest level since March 2020.

There are now more than 4,500 deals on offer – just 700 fewer mortgage options than there were before the pandemic, according to data from Moneyfacts, with 269 launched in the last month alone.

And the number of 5 per cent deposit mortgages has leapt almost twentyfold over the past 12 months. 

First-time buyers have seen the number of 5 per cent deposit mortgages increase nearly twenty-fold in the past year, after deals were pulled at the start of the pandemic

For the first time in three years, the data service has recorded an increase in mortgage options for all deposit sizes.

Deals for first-time buyers all but disappeared at the beginning of the pandemic, but there is now evidence that 5 and 10 per cent deposit mortgages have returned in significant numbers.

This time last year there were just 14 mortgages available for borrowers with 5 per cent deposits, but today that number is 18 times higher at 253.

Sixty-one of these were launched in the last month alone, and in the past six months mortgage choice has increased by 56 per cent.

Mortgages are also getting cheaper across the board. For only the second time in the past 12 months, both the average overall two-year and five-year fixed rates fell over the course of the month to 2.55 per cent and 2.78 per cent, respectively.

These were the largest monthly reductions recorded for either rate since June 2020, as banks and building societies sought to attract customers with competitive deals.

This included some launching rates of less than 1 per cent for those with the highest levels of deposits or equity, in part to capitalise on the housing boom fuelled by Government’s stamp duty holiday.

The tax break, which was tapered down on 30 June so that buyers can now only save up to £2,500 rather than the initial £15,000, has contributed to house prices increasing by 8.8 per cent in the past year according to the latest Halifax house price index.

However, although rates are trending downwards they have still not gone as low as they were this time last year.

In July 2020, Moneyfacts logged record lows of 1.99 per cent and 2.25 per cent for two and five-year fixes, though the fact that very few low-deposit mortgages – which typically have higher interest rates – were available brought the overall average down.

The latest data from Moneyfacts shows that mortgage rates have come down in the past month, but that they have not yet reached the lower average of July 2020

The latest data from Moneyfacts shows that mortgage rates have come down in the past month, but that they have not yet reached the lower average of July 2020

Rates for those stepping on to the ladder remain high, with the average five-year fixed rate on a 5 per cent deposit mortgage still above 4 per cent.

Though there were a few available this time last year, the average rate on the same mortgage was lower at 3.46 per cent.

Comparing the figures to before the pandemic, the average two-year fixed rate has increased 0.06 per cent on July 2019 while the average five-year fix had fallen 0.07 per cent.

According to Moneyfacts, this may be a sign that lenders are responding to borrowers’ desire for longer-term stability in uncertain economic times.

Eleanor Williams, finance expert at Moneyfacts, said: ‘First-time buyers and those considering a mortgage at higher LTVs are amongst those to benefit the most from rate cuts, with the average two- and five-year fixed rates at 90 per cent LTV falling by 0.15 per cent and 0.08 per cent respectively, while at 95 per cent LTV reducing by 0.09 per cent and 0.06 per cent.

‘But equally it is impossible to ignore the growing ranks of providers offering sub-1 per cent deals to tempt borrowers with larger levels of equity or deposit as well.’

Williams added that competitive mortgage rates could help to keep the housing market buoyant even after the stamp duty holiday tapered down.

‘Demand for the very limited supply of property could remain high, as the appetite to either get onto the property ladder or for larger properties with home offices and outdoor space continues, and these borrowers could be enticed by the possible savings lower mortgage rates may bring them,’ she said.

On the subject of whether rates would continue to fall, Williams said it could not be guaranteed and that borrowers may wish to assess their circumstances and see if switching could save them money.

‘Competition is evident across the residential mortgage sector, but there is no guarantee that rates will continue to fall, or for how long these record-low deals may be available for,’ she said.

‘Seeking advice to assess the best true cost deal for their own circumstances would be a wise move by any prospective borrower.’

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