Metro Bank has become the latest high street lender to offer a 100% mortgage for eligible first-time buyers, as banks and building societies relax affordability rules and introduce more creative products.
Growing number of low-deposit deals
For many first-time buyers, getting onto the property ladder can feel impossible. However, a growing number of mortgage deals now require only a small deposit, or none at all. Home loans allowing 100% borrowing were common before the 2008 financial crisis but were axed afterwards. Now they are making a comeback.
The Metro Bank deal follows a heavily promoted first-time buyer mortgage from Lloyds requiring a minimum deposit of only £5,000. Over the past year, banks and building societies have been relaxing affordability rules and becoming more creative with their mortgage products.
Comparing the deals
David Hollingworth at broker L&C Mortgages says comparing these deals isn't always straightforward because they work in slightly different ways, and eligibility varies between lenders.
In May, Lloyds launched its mortgage with a minimum deposit of £5,000, equivalent to a maximum loan-to-value of just over 98%. It is a five-year fixed deal with an interest rate of 5.89% (at time of writing). However, it is only available on homes worth up to £300,000, so it may not be an option for buyers in pricier areas like London or for those considering larger properties. This deal is also available via Halifax and mortgage brokers.
Santander has a similar deal allowing borrowing up to 98% of a property's value. It is also a five-year fixed-rate loan (currently 5.49%), but the maximum loan is £500,000 and the minimum deposit is £10,000.
The Skipton and Yorkshire building societies offer deals allowing borrowing up to 100% and 99% respectively. Skipton's deal is aimed at current and recent renters, with a maximum loan of £600,000, a five-year fix, and rates starting at 5.55%. Yorkshire's deal (also a five-year fix) has a maximum loan of £495,000 and a rate of 6.44%.
Joint borrower, sole proprietor mortgages
There are also more deals enabling people to boost borrowing power with help from a relative or friend. These are known as joint borrower, sole proprietor (JBSP) loans. They allow borrowers to add extra people to the mortgage without making them legal owners of the property. The lender factors in all incomes during the application, meaning you can usually borrow more than on your own.
Some deals only allow immediate family members like parents; others accept other relatives and friends. However, everyone shares legal responsibility for mortgage payments, so this is not to be entered into lightly.
Hollingworth says many lenders offer JBSP as an option. Doug Miller at broker Lansdown Financial Services says there has been "a significant increase in demand" for JBSP mortgages as property prices continue to rise and affordability becomes more stretched.
The new Metro Bank JBSP deal allows customers to borrow more than 95% and up to 100% of a property's value, provided they have an immediate family member to act as joint borrower in case of missed payments or financial changes. It is a five-year fixed deal with a maximum loan of £675,000, but the rate is high at 6.99%.
Higher rates for low deposits
In return for not having to put down a deposit, or only a very small one, you typically pay a higher interest rate. At the time of writing, those who can afford a 5% deposit (borrowing 95%) could get standard new two- and five-year fixed-rate mortgage deals starting at about 5.05% and 4.95% respectively. With a deposit of 10% or more, rates are even lower and there is a bigger choice of deals.
Buyers considering low- or no-deposit deals should weigh their options carefully and may want to talk to a broker. Some first-time buyers will prefer to keep saving for a deposit to obtain a better interest rate via a standard deal, Hollingworth says. However, he adds: "For those who feel as if they are treading water paying rent, being able to put down as little as £5,000 [or in some cases nothing at all] could make home ownership a much more achievable option for them."
* All product details and rates correct at time of writing.
