Choice of mortgages shrinks as average rates offered on home loans increase

PA

The number of mortgage products on the market is continuing to shrink after halving earlier this year, analysis has found.

And the number of 5% deposit mortgages to choose from is now barely in double digits, Moneyfacts.co.uk found.

Across the market, there are now 2,259 deals of all deposit sizes to choose from, including fixed and variable rates, Moneyfacts said.

Back in March, there were 5,222 deals across all deposit sizes to choose from, but as the coronavirus lockdown set in the number of products available soon halved, sitting at 2,566 by May this year.

  • March, 5,222

  • May, 2,566

  • October, 2,259

Looking specifically at the 5% deposit market, often relied upon by first-time buyers, there are just 12 deals available. This is just a small fraction of the 391 5% deposit deals to choose from in March.

Moneyfacts said 15% is the minimum deposit size that many providers now require – and low or no deposit deals often require a family member to give some sort of assistance to secure the mortgage. This could be in the form of parental savings which are linked to the mortgage.

Prime Minister Boris Johnson recently pledged to turn “generation rent into generation buy”, with new long-term, fixed-rate mortgages with deposits as low as 5%. Specific details about exactly how these deals will work have not yet been disclosed.

Eleanor Williams, a finance expert at Moneyfacts, said average mortgage rates have also been increasing recently.

In June, the average five-year fixed-rate across all deposit sizes was 2.26%, but now it is 2.62%.

Ms Williams said firms are likely to be factoring the added risks of lending in the uncertain economic environment into their mortgage rates.

She said: “This increase in rates is likely in part due to the proportion of a rate that a provider needs to attribute to the risk of default, which may be a concern as a result of the economic outlook remaining so unclear.

“For example, the spectre of negative equity should house prices drop from their current levels is one that responsible lenders will be keen to mitigate, yet have no control over.

“Similarly, uncertainty around future employment levels and income as Government support schemes begin to unwind is another factor lenders may be considering.”

She added: “Any customer hoping to progress with a purchase or remortgage imminently would be very wise to seek support and guidance to assess what options may be able to suit their circumstances.”

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