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Low-deposit mortgages 'will be harder to get'

By Joel Stanier

6 January2021

Lenders are likely to offer a wider range of mortgage deals for homebuyers with low deposits this year, according to the Bank of England - but it predicts they will become harder to get overall.

With many would-be homeowners struggling to save for a decent deposit, lenders say they will be 'innovating' in order to help more people get a foot on the property ladder, according to the Bank's latest Credit Conditions Survey.

For example, some lenders plan to launch schemes in which house builders cover part of the deposit, meaning the borrower's mortgage payments would be as if they had put down a larger deposit. They could then increase their own deposit at a later date.

But at the same time, lenders expect to tighten their lending criteria for mortgages in the first quarter of 2021 - meaning borrowers could still struggle to get the mortgage they're looking for.

A mortgage expert at Think Money commented: "Part of the reason that mortgages have become harder to obtain in recent years is that lenders have asked for higher deposits. Whereas 0%, 5% and 10% deposits were fairly commonplace just a few years ago, now lenders tend to expect at least 15% or 20%.

"It now seems that lenders are becoming more comfortable with lending to people who have lower deposits again. However, lending criteria are stricter than they were a few years ago, and lenders will really have to be sure that the borrower can afford their payments before they will agree a mortgage with them.

"It's also worth remembering that low-deposit mortgages can be risky. Bear in mind that any drop in your home's value is counted against your deposit - so if you have a 5% and the value falls by 6%, for example, you'd be left owing more money than your house is worth, which can make remortgaging very difficult.

"Given that experts are predicting a drop in house prices this year, it may be worth waiting until you have a more substantial deposit before you buy."

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Tags: mortgage, mortgages, remortgage, remortgaging, Bank of England, Credit Conditions Survey, mortgage payment, low deposit mortgage, deposit

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