Banks 'offer more 5% deposit deals'
%VIRTUAL-SkimlinksPromo%Banks have rapidly become more dominant in the ultra-low-deposit mortgage market since the Government's flagship Help to Buy scheme was fired into action, according to a financial website.
Traditionally, building societies have held a bigger share of the number of deals on offer for people with a 5% deposit, largely due to banks being more reluctant to offer such products which are seen as being more "risky", according to Moneyfacts.
But figures from Moneyfacts show that by this month, banks were offering more fixed-rate 5% deposit deals than building societies, with 58 products to choose from against 48 from mutuals.
Banks are now offering seven times more fixed-rate 5% deposit deals than they were just half a year ago. Last August, banks had just eight of these products on the market, while building societies had over three times as many, with 27 deals on offer.
But building societies still offer the lion's share of variable rate mortgages for people with 5% deposits, with 21 deals available from them compared with just four from banks.
Sylvia Waycot, editor of Moneyfacts.co.uk, said: "Having been pushed out of the fixed sector, building societies have responded by offering a larger number of 95% variable mortgages than has been seen for some time.
"The danger of a variable mortgage for a first-time buyer, however, is that you are at risk of fluctuating monthly repayments and the need for budgeting for increases is more important, especially with the current uncertainty of when rates will rise and by how much."
The new UK-wide Help to Buy mortgage guarantee scheme was launched in October last year, injecting fresh competition in the very low deposit bracket from both from those lenders taking part in the scheme as well as those outside it who are battling to maintain their position.
The initiative offers state-backed mortgages to people with a deposit as low as 5% and can be used by both first-time buyers and home movers to buy a new-build or an older property worth up to £600,000.
The "guarantee" in Help to Buy is there for the lender, not the borrower. Mortgage lenders taking part in the scheme are able to buy a guarantee from the Government that will compensate them for some of their losses if a borrower defaults, thereby removing some of the risk of offering such a low deposit deal for the lender.
HSBC, which is taking part in Help to Buy, currently sits at the top of Moneyfacts' "best buy" tables for two-year fixed-rate deals in the 5% deposit bracket. HSBC offers a rate of 4.79% with a £99 fee.
Sitting just behind HSBC is Chelsea Building Society, which is not part of Help to Buy, which offers a slightly higher rate of 4.89%, with a fee of £1,545.
Norwich and Peterborough Building Society, which is also not part of Help to Buy, offers a two-year fix at 4.99% with no fee for first-time buyers. Santander, which is in Help to Buy, also has a two-year fee-free fix at 4.99%, which comes with an incentive package including a £250 rebate on completion.
The Bank of England base rate, which has been held at a historic 0.5% low for five years, has helped to keep people's mortgage payments relatively affordable. Some better news about the economy recently prompted speculation that it could start to rise again sooner than some had expected, although there have also been indications that any increases are likely to be gradual.
Some experts have suggested that those borrowers who are worried about the impact of any rate increases on their mortgage payments should consider locking into a longer-term fixed-rate deal.
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