Decrease in small deposit mortgages

The number of different mortgages available to people with a 5% deposit has slumped to just 66 as banks continue to tighten their lending criteria, a financial information group said.

The figure, which is made up of 51 fixed rate deals and 15 variable or discount ones, is well down on the total of 1,079 different products available for people borrowing 95% of their home's value in July last year.

Rates on these deals are also far higher than for people with bigger deposits, with a best buy two-year fixed rate mortgage for someone with a 5% deposit starting at 6.39%, compared with a leading rate of 5.49% for a borrower with a 20% one.

The fall in the number of 95% loan to value (LTV) deals available is making it increasingly hard for first-time buyers to get on the property ladder, despite falling house prices.

Darren Cook, mortgage expert at Moneyfacts.co.uk, said a year ago the market for people with a small deposit was extremely competitive, with nearly three-quarters of all loans available to people who had a deposit of 10% of less.

He said: "Competition was one of the major factors when setting mortgages rates and best buys were awash with deals at 95% LTV. Today the overriding factor when setting mortgage rates is risk.

"Lenders are focusing much more on risk. They are making less products available to borrowers with a small deposit and making the few that are available much more expensive."

He added that as house prices fell, lenders would continue to want large deposits to protect themselves if the homeowner defaulted on their loan.

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