Mortgage options shrinking

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THE choice of mortgages for people with a 10% deposit has shrunk by almost a quarter in six months, while the number of deals for borrowers with a 5% deposit has nearly halved, new research has found.

Comparison website MoneySupermaket highlighted the struggle faced by first-time buyers and those with smaller deposits to find a mortgage, despite the recent launch of a scheme to encourage lending.

The selection of products aimed at first-time buyers has plummeted by almost a third over the last year, from 1,786 at 12 months ago to 1,225 now, the website found.

The Bank of England and the Treasury fired an £80bn “funding for lending” scheme into action at the start of this month to boost lending to households and businesses, but MoneySupermarket said there is little to show the initiative is doing much to help mortgage borrowers with smaller deposits.

The website found 318 mortgages available at 90% loan-to-value (LTV) six months ago, compared with 244 today. There were 330 such deals on the market a year ago.

There are 28 mortgages on offer at 95% LTV compared with 49 six months ago, although the numbers have more than doubled compared with a year ago, when there were 13.

Clare Francis, a mortgage expert at MoneySupermarket, said: “Our analysis shows the continuing difficulty facing first-time buyers and those with smaller deposits looking to find a suitable mortgage.Despite the launch of the funding for lending scheme which was designed to encourage further mortgage lending by the banks, there appear to be few signs that the initiative is helping those with small deposits.

“It is still early days and we won’t see any data on the impact of the initiative until the end of the year, but so far there is little to indicate that the scheme will kick-start the beleaguered mortgage market.”

There have been signs of increased competition among mortgage lenders who have slashed some of their rates in recent weeks, but much of this has been aimed at less “risky” borrowers with higher deposits.

Lenders have also tightened borrowing criteria in recent months amid the uncertain economy, making it harder to take out a mortgage.

A separate study released by Experian found that more people have resorted to lying about their finances in recent months when applying for a mortgage.

Figures recently released by the British Bankers’ Association showed that mortgage approvals slumped to their lowest number in at least 15 years in June.

However, the Council of Mortgage Lenders (CML) said it saw an 8% rise in lending between June and July, saying the mortgage market has “see-sawed” in recent months.

The CML said on Monday that it was too early to say whether the funding for lending scheme has encouraged banks to lend more to aspiring home owners.