Lenders are beginning to reduce interest rates on 10 per cent deposit mortgages, as more products return to the market.
This week, Metro Bank cut the rate for its 90 per cent loan-to-value, five-year fixed rate mortgages by 0.4 percentage points.
New mortgages are now being offered at 3.59 per cent, while those looking to remortgage can do so at a rate of 3.64 per cent.
Some major lenders have dropped the interest rates on their 10 per cent deposit products
Following the withdrawal of many 10 per cent deposit deals at the beginning of the pandemic, Metro Bank reintroduced its 10 per cent deposit mortgages earlier than most lenders, in late September. However, this was at a relatively high rate of 3.99 per cent with a £999 fee.
Last week, Nationwide also reduced rates across its product range, including on its 10 per cent deposit mortgages.
Interest on its 90 per cent loan-to-value, two-year fixed-rate mortgage was reduced by 0.25 per cent to 3.24 per cent – one of the lowest rates on the market.
In addition, its two-year fixed-rate purchase-only mortgage for those with a 25 per cent deposit had its interest rate reduced by 0.4 per cent to 1.59 per cent.
Remortgage products also saw rate cuts of up to 0.4 per cent
Henry Jordan, the building society’s director of mortgages, said it wanted to ‘showcase to borrowers that we want to continue offering some of the most competitive mortgage products on the market.’
Also last week, Barclays reduced the interest rate slightly on its two-year fixed, purchase-only product for those with 10 per cent deposits from 3.55 per cent with a £999 fee to 3.48 per cent with a £999 fee.
The equivalent five-year fixed product saw its rate cut from 3.65 per cent to 3.48 per cent.
Rates were also cut on two further purchase-only deals with no fees: the 10 per cent deposit, two-year fixed rate was cut from 3.75 per cent to 3.72 per cent, while the 10 per cent deposit, five-year fixed rate was cut from 3.79 per cent to 3.72 per cent.
Despite these reductions, rates remain a percentage point or more higher than they were in early 2020 before the onset of Covid-19.
Mortgage brokers said that, given the increased number of lenders in the market and the resulting competition, rates on 10 per cent deposit products could continue to fall.
Matt Coulson, founder of Heron Financial, said: ‘Right now there’s a lot of activity in the market, particularly from first time buyers looking to move quickly and benefit from the stamp duty holiday, which ends soon.
This end of the market typically require higher loan-to-value products, so if there were too few lenders, they would be absolutely swamped and unable to service demand.
‘However, the fact that there are so many options – especially with the larger lenders like Nationwide and Barclays returning – shows that lenders have confidence that the property market will remain buoyant.
‘As criteria is an area all of them have to remain strict on, the only area lenders can be competitive with each other on is rates. If they’re confident that there are enough other lenders out there to make this viable – which there are -then rates should continue come down to attract more borrowers.’
Mortgage payments for first-time buyers are below the long-term average in much of the UK
Miles Robinson, head of mortgages at online mortgage broker, Trussle, also said that rates could come down.
‘Last month, Bank of England data reported that mortgage product availability had risen for the third consecutive month.
The largest monthly growth in availability was within the 90 per cent loan-to-value bracket – rising from 72 in June 2020, to 160 in December 2020.
‘It’s encouraging to see so many high street lenders investing in the first-time buyer space, and rates could become more competitive as a result.
‘However, how the demand will impact the market as we move towards Spring remains to be seen.’
Recent research from Nationwide suggested that saving for a deposit larger than 10 per cent was increasingly difficult.
It found that a 20 per cent deposit on a home now equated to 104 per cent of the annual pre-tax income of the average worker.
This figure, which applies to the last three months of 2020, has increased from 87 per cent ten years ago.
