Low-deposit mortgages are back, but blink and you’ll miss them.
A handful of banks have relaunched 90% mortgages in the past few weeks, providing a boost for first-time buyers who’ve seen their options disappear since the start of the coronavirus pandemic.
But there’s a catch. Lenders inundated with enquiries have been releasing deals in flash sales, which expire after 24, 48 or 72 hours, meaning it’s become a race to the finish line for eager applicants.
Here, Which? explains how flash sales work, whether they’re here to stay and how to get ahead of the game with your mortgage application.
Why are lenders launching flash sales?
There are currently very few 90% or 95% mortgages on the market, with lenders withdrawing nine out of 10 low-deposit deals since March.
Banks that stood firm have been swamped by applications, resulting in HSBC temporarily suspending its market-leading mortgages earlier this month.
Nationwide is now the only major lender offering two and five-year fixed-rate mortgages for borrowers with a 10% deposit, but these deals come with 25-year maximum terms and limits on gifted deposits.
This situation has led to banks offering 90% deals in flash sales. Last week, TSB launched a new mortgage for one day only, with a maximum overall limit on lending. This came off the back of Accord launching deals in 48-hour windows, and the Coventry Building Society in 72-hour bursts.
David Hollingworth associate director of communications at London &Country Mortgages says: ‘Lenders that have offered 90% mortgages have faced a deluge of business at a time when capacity remains limited and processing is taking longer. The sheer lack of choice has meant applications kept on coming, so lenders have sought different ways to try and achieve a more appropriate volume’.
How do mortgage flash sales work?
On paper, a mortgage flash sale seems like a bad idea – after all, the last thing you want to do is rush into taking out a loan for hundreds of thousands of pounds – but there are safeguards in place.
First of all, the criteria lenders are setting is stricter than before. Some will only lend on houses priced up to a certain amount (e.g. £300,000) and ban lending on flats and new-build homes completely. Others place a greater emphasis on job security or will cap how much you can borrow.
Secondly, these deals tend to only be available through mortgage brokers, and without a broker you might not hear about them at all, as they tend to be announced just 24 or 48 hours before their launch.
By limiting applications to brokers, lenders can ensure there is a specialist acting on behalf of the applicant, ensuring they can adhere to the criteria and can afford the loan.
Are flash sales here to stay?
With economic uncertainty set to continue for the foreseeable future, we almost certainly haven’t seen the last of flash sales.
Eleanor Williams, finance expert at comparison website Moneyfacts, says: ‘Until more banks return to offering low-deposit mortgages, it seems likely that we will continue to see an ebb and flow and perhaps more lenders will follow the example of launching limited-edition deals’.
Eleanor says first-time buyers should consider taking advice from a mortgage broker, who can navigate the market to find the most suitable deal, and be on the ball when products are launched.
She says: ‘There is no guarantee how long new deals will be available for, so speed and preparation could be the key to securing a mortgage’.
David Hollingworth says: ‘What the higher loan-to-value market really needs is more lenders to rejoin and create a more stable range of products. More lenders offering 90% deals would help encourage others to join in and build momentum’.
Mortgages since COVID-19
Overall, the number of mortgages available to first-time buyers has crashed by 40% since the coronavirus outbreak, a figure that rises to 90% when we focus solely on 90% and 95% mortgages.
There are currently 1,609 fixed-rate deals on the market for first-time buyers, but three-quarters of these (1,212) require a deposit of at least 20%.
The table below shows how mortgage numbers have fallen since March.
|Loan-to-value||Number of deals (March)||Number of deals (September)||Change (%)|
Source: Moneyfacts. 17 September 2020.
Options for first-time buyers
The lack of deals available to first-time buyers mean many will face the prospect of putting their move on hold until the market improves, or attempting to save more to get an 85% mortgage.
Saving a bigger deposit
David Hollingworth says: ‘It may be that some buyers can qualify for the current crop of 90% deals, but it’s slim pickings. The inevitable question will be whether they can stretch to a bigger deposit and find their way to put down 15% which will broaden their choice substantially and improve the rates on offer.
‘However, that’s often easier said than done when prices show little sign of dropping amidst the current demand.’
The Bank of Mum and Dad
Eleanor Williams says first-time buyers may be able to seek help from their parents, even if they’re unable to gift or loan money towards a deposit.
She says borrowers could look into guarantor mortgages, where parents can earn interest on their savings while helping their offspring buy a home, or joint borrower sole proprietor mortgages, where both parties use their income to buy the home, but only the offspring is listed on the deeds.
You can find out more about guarantor mortgages in our recent article.