HSBC and Coventry Building Society have become the latest lenders to relaunch 90% mortgages for first-time buyers.
The number of low-deposit deals on the market has nearly doubled since the start of December – but rates remain significantly higher than before the pandemic.
Here, Which? reveals the best rates available to first-time buyers and offers advice on buying your first home in 2021.
Low-deposit mortgages make a comeback
The COVID-19 outbreak last March saw nine-in-10 90% mortgages withdrawn from the market, but the good news is that low-deposit deals are now finally making a comeback.
HSBC and Coventry Building Society have relaunched their deals this week, while Nationwide cut the cost of its two-year fixed-rate deal.
Data from Moneyfacts shows the number of 90% mortgage has risen from 88 to 160 since the start of December.
This rise has seen the average rate on a two-year fix drop by 0.14% and five-year fixes fall by 0.13% in the space of a month, as shown in the graph below.
Best rates on 90% mortgages
In November, Nationwide was the only major lender offering 90% mortgages, but in the last six weeks, some of the UK’s biggest banks have returned to the fold.
As you’ll see when we assess the cheapest deals below, however, lenders are very much proceeding with caution and none are offering truly headline-grabbing rates.
Two-year fix
The best initial rate currently available on a two-year fix is available from Penrith Building Society (2.99%), but you can only apply for this deal if you live in Cumbria and are borrowing a maximum of £250,000.
The cheapest nationally-available deals start at 3.24%, a figure well in excess of the 1.8% recorded before the COVID-19 outbreak last March.
As the table below shows, there’s little to choose between the cheapest five deals.
| Lender | Initial rate | Revert rate | Up-front fee | Max. loan |
| Nationwide | 3.24% | 3.59% | £999 | £500,000 |
| TSB | 3.24% | 2.59%* | £995 | £500,000 |
| Coventry | 3.29% | 3.99% | £999 | Not stated |
| Atom Bank | 3.39% | 3.5% | £900 | £350,000 |
| Leeds | 3.44% | 4.04% | £999 | Not stated |
Note: Data from Moneyfacts, 13 January 2021. *TSB’s revert rate is 2.49% plus the Bank of England base rate (currently 0.1%)
Some of the UK’s biggest lenders feature slightly further down the list. Lloyds and Halifax offer deals at 3.49%, Barclays at 3.55% and HSBC at 3.69%.
Five-year fix
If you’re looking to fix your mortgage for longer, the most notable thing to report is that the gap in cost between two and five-year fixes is now just 0.1%.
This comes with the caveat that the cheapest five-year fixes have higher up-front fees, as shown in the table below.
| Lender | Initial rate | Revert rate | Up-front fee | Max. loan |
| Atom Bank | 3.34% | 3.5% | £1,200 | Not stated |
| Platform | 3.39% | 4.34% | £1,499 | Not stated |
| Nationwide | 3.44% | 3.59% | £999 | £500,000 |
| TSB | 3.44% | 2.59%* | £995 | £500,000 |
| Coventry | 3.49% | 4.49% | £999 | Not stated |
Note: Data from Moneyfacts, 13 January 2021. *TSB’s revert rate is 2.49% plus the Bank of England base rate (currently 0.1%)
Again, major lenders including Lloyds (3.54%), Halifax (3.59%), Natwest (3.59%) and Barclays (3.65%) also offer competitive deals, albeit with slightly higher rates.
Will 90% deals get cheaper?
If you are thinking of getting a 90% mortgage, it might pay to wait a little longer.
Right now, lenders are slowly relaunching their deals, but they’re all offering very similar deals at near-identical prices, with just 0.3% separating most of the biggest players.
We’ve already seen Nationwide cut its rates this week, and as demand from first-time buyers rises, so too may the competition to offer the cheapest deals – resulting in lower costs for first-time buyers.
Is it worth saving more to get a lower rate?
Generally speaking, the bigger your deposit, the cheaper your mortgage rate.
The cheapest two-year 90% fix is priced at 3.24%, but you can get an 85% mortgage with a considerably lower rate of 2.69% (from Clydesdale Bank).
If you can save an extra 5% deposit, you can usually save around 0.6%-1% on your rate, meaning you could make substantial savings on monthly payments in the long run.
Buyers with bigger deposits also tend to have more choice. Right now, there are 252 85% mortgages on the market, compared to 160 90% deals.
Are 95% mortgages likely to make a comeback?
We may need to wait considerably longer to see 95% deals come back to the market.
At the start of March last year, 391 95% deals were available for first-time buyers, but as of this month that figure has dropped to just six – and none are widely available.
With the pandemic continuing, it seems highly unlikely that 95% mortgages will return in a big way in the coming months.
If you’re looking to buy a home with a 5% deposit, your may be best considering schemes such as Help to Buy – which will be relaunched with new price caps this April – or looking into options such as guarantor mortgages.
How to buy your first home in 2021
It’s a tough time to get on the property ladder, with COVID-19 bringing uncertainty and the stamp duty cut resulting in rising house prices.
The good news is that we’re here to help with all the advice you need, whether you’re putting money aside for a deposit or are ready to apply for a mortgage.
As a starting point, check out our step-by-step guide on buying a house, which takes you on the journey from saving a deposit to exchanging contracts.
If you’re struggling to get to grips with mortgages, we’ve got lots of advice on the different types of deal, how much you can borrow and how to apply.
Finally, why not check out our mortgage lender reviews, which combine customer ratings with our expert analysis to identify the UK’s best mortgage lenders.
