The number of mortgages available to borrowers with a 10 per cent deposit — typically first-time buyers — plunged by more than a quarter in the past year.
And loans for buyers with a 5 per cent deposit dropped by a third in just six months, figures from the comparison website Moneysupermarket show.
This mortgage famine for first- time buyers is in stark contrast to the rock-bottom deals lenders are offering for less risky borrowers who are able to stump up larger deposits.
It is also happening despite the billions in cheap loans the Government is pumping into Britain’s banks and building societies under an £80 billion scheme to encourage banks to lend more.
Clare Francis, mortgage expert at Moneysupermarket, says: ‘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 kickstart the beleaguered mortgage market.’
Lenders such as Cambridge, Ipswich, and Skipton BS are among those to have pulled their 5 per cent deposit mortgages in the past six months — leaving only a pitiful 28 loan options from which struggling first-time buyers can choose, according to Moneysupermarket. And experts say that the true number of 5 per cent loans on offer could be lower still.
This is because some lenders barely put any funds behind these mortgages, or have such tough qualification rules that they are virtually impossible for borrowers to obtain.
Aaron Strutt, of mortgage broker Trinity Financial, says: ‘Mortgages have been getting cheaper but low rates for those first-time buyers with a small deposit are still quite rare.’
One of the best home loans for borrowers with a 5 per cent deposit is a five-year fixed-rate deal with Newcastle BS at 5.99 per cent and a £690 fee — making monthly payments on a £150,000 loan of £966 and the total cost £58,650.
Alternatively, for borrowers less ready to lock in for a long time, Newcastle offers a two-year deal at a more expensive 6.25 per cent.
Monthly repayments on the same size mortgage are £990 and the total cost is £23,760 over the period. There is no fee.
According to Moneysupermarket, there are now 244 loans for borrowers with a 10 per cent deposit.
This is still a stark contrast to the 484 deals that are available for buyers who can stump up a 40 per cent deposit.
But Ray Boulger, of mortgage broker John Charcol, says that there are increasingly good deals on offer for those with a 10 per cent downpayment.
He says: ‘It’s the quality, not quantity, that counts.
‘The real question borrowers should ask is not how many deals are available to them, but how good those deals are.
‘It’s better to have ten strong mortgage deals to choose from than dozens of poor ones.’
One of the best 10 per cent loans around is over five years with RBS at 4.79 per cent and no fee.
Monthly repayments on a £150,000 loan are £859 and the total cost is £51,540.
An alternative 10 per cent deal is 4.79 per cent with Nottingham BS, which offers a three-year fixed-rate deal at 4.79 per cent. Monthly repayments on £150,000 are £859 — and the total cost with just a £299 fee is £31,223.
Alternatively, First Direct has a five-year loan at 4.99 per cent with no fee, making monthly repayments £876 and the total cost £52,560 on £150,000.
Yet even these mortgages are far more expensive than the deals on offer to borrowers who are able to stump up a larger downpayment.
HSBC has pulled its five-year fixed-rate deal at 2.99 per cent for borrowers with a 40 per cent deposit after just one month. But borrowers can opt for an even cheaper 2.95 per cent five-year fixed-rate deal with NatWest — although it carries an eye-watering £2,495 fee.
Monthly repayments on a £150,000 loan are £707 — and the total cost over the repayment period is £44,915.
By contrast, borrowers who are only able to gather together a 10 per cent deposit would pay £152 a month more and £6,625 more over the course of the term on a £150,000 loan — even if they took out the table-topping RBS mortgage at 4.79 per cent.