Lenders are continuing to relaunch their low-deposit mortgages, meaning first-time buyers could find it easier than before to get on to the property ladder.
The number of 90% mortgages on the market has risen significantly in the past couple of months, but rates remain much higher than before the pandemic.
Here, Which? reveals the best rates available to first-time buyers and gives advice on buying your first home in 2021.
Low-deposit mortgages return for first-time buyers
Nine in 10 90% mortgages were withdrawn from the market in the wake of the COVID-19 outbreak last spring.
Nearly a year on, first-time buyers have finally been handed a boost, with the majority of major lenders now offering low-deposit deals again.
The latest lenders to relaunch 90% mortgages are Cambridge Building Society, Ipswich Building Society and West Bromwich Building Society, all of which have reinstated their deals in the last week.
This means there are now 193 fixed-rate 90% mortgages available to first-time buyers, compared to just 88 at the start of December.
- Find out more: what is a fixed-rate mortgage?
What does this mean for rates?
More choice is great news for borrowers, but at this stage rates are only dropping very slightly.
Lenders are very much proceeding with caution by bunching their deals together, with no one so far offering a truly headline-grabbing rate.
For example, on two-year fixes, HSBC, Lloyds Bank, Halifax, Yorkshire Building Society and Leeds Building Society are all offering rates between 3.39% and 3.44%.
It’s a similar story for five-year deals, with Lloyds Bank, Virgin Money, Barclays and Halifax pricing their deals between 3.45% and 3.5%.
The graph below shows how the average rate on 90% deals has dropped recently but remains significantly higher than before the pandemic.
Best rates on 90% mortgages
Two-year fixed-rate deals
The best rate currently available on a two-year fix is from Penrith Building Society, but you can only apply for this deal if you live in Cumbria.
The cheapest nationally available deals start at 3.14%, well above the 1.8% recorded before the COVID-19 outbreak last March.
As the table below shows, there’s little to choose between the cheapest five deals.
| Lender | Initial rate | Revert rate | Upfront fee | Cashback |
| Platform | 3.14% | 4.34% | £1,499 | £250 |
| Nationwide | 3.24% | 3.59% | £999 | £500 |
| NatWest | 3.24% | 3.59% | £995 | None |
| RBS | 3.29% | 3.59% | £995 | None |
| Virgin Money | 3.29% | 4.34% | £995 | £1,000 |
Note: Data from Moneyfacts, 9 February 2021.
Five-year fixed-rate deals
Five-year deals usually have higher rates than two-year deals because they offer a longer period of rate certainty. But now, the gap in cost between the cheapest two and five-year fixes is just 0.24%.
Metro Bank and Platform offer the best initial rate (3.39%), albeit with Platform charging a higher up-front fee.
| Lender | Initial rate | Revert rate | Upfront fee | Cashback |
| Metro Bank | 3.39% | 4.34% | £999 | None |
| Platform | 3.39% | 3.59% | £1,499 | £250 |
| NatWest | 3.43% | 4.24% | £995 | None |
| Nationwide | 3.44% | 4.34% | £999 | £500 |
| Lloyds Bank | 3.45% | 4.64% | £995 | £200 |
Note: Data from Moneyfacts, 9 February 2021.
- Find out more: the best mortgage lenders to borrow from
Will 90% deals get cheaper?
If you’re thinking of getting a 90% mortgage, it might be wise to wait a little longer.
We’ve already seen a couple of banks cut their rates, and as demand from first-time buyers rises, so too may the competition to offer the cheapest deals – resulting in lower costs.
We’ve got loads of mortgage advice, from how to find the best deal to our how much mortgage can I borrow? calculator.
Is it worth saving more to get a lower rate?
Generally speaking, the bigger your deposit, the cheaper your mortgage rate.
The cheapest two-year 90% fix is priced at 3.14%, but you can get an 85% mortgage with a considerably lower rate of around 2.6%.
If you can save an extra 5% deposit, you can usually save around 0.6% to 1% on your rate, meaning you could make substantial savings on monthly payments in the long run.
Buyers with bigger deposits also tend to have more choice. Right now, there are 335 fixed-rate 85% mortgages for first-time buyers, compared to 193 90% deals.
- Find out more: how to save up a bigger deposit
Are 95% mortgages likely to make a comeback?
It’s likely to be some time before we see 95% deals come back to the market.
At the start of March last year, there were 391 95% deals available for first-time buyers – this month it’s dropped to just three – and none are widely available.
With the pandemic continuing, it seems highly unlikely that 95% mortgages will return in a big way in the coming months.
If you’re looking to buy a home with a 5% deposit, you may be best considering schemes such as Help to Buy – which will be relaunched with new price caps this April – or looking into options such as guarantor mortgages.
- Find out more: Help to Buy calculator
How to buy your first home in 2021
It’s a tough time to get on the property ladder, with the pandemic bringing uncertainty and the stamp duty holiday resulting in rising house prices.
We’re here to help with all the advice you need, whether you’re putting money aside for a deposit or are ready to apply for a mortgage.
As a starting point, check out our step-by-step guide to buying a house, which takes you on the journey from saving a deposit to exchanging contracts.
If you’re struggling to get to grips with mortgages, we’ve got lots of advice on the different types of deal, how much you can borrow and how to apply.
Finally, why not check out our mortgage lender reviews, which combine customer ratings with our expert analysis to identify the UK’s best mortgage lenders?
- Find out more: nine steps towards buying your first home in 2021
This story was originally published in January 2021. It is regularly updated with the latest 90% mortgage deals and rates. The last update was on 10 February 2021.
source https://www.which.co.uk/news/2021/02/90-per-cent-mortgage-rates-drop-which-reveals-best-first-time-buyer-deals/