Mortgage thaw brings hope to first time home buyers of better small deposit deals

First-time buyers and homeowners with little equity have more choice for mortgages following a relaxation in the market in recent weeks.

 A small deposit helped us buy: Jo Ann Reynolds with partner Kevin Jack at their new home (read their story below)

 Cambridge Building Society, one of the few lenders to offer mortgages to those with only a five per cent deposit in its local area, cut its rates last week by 0.7 of a percentage point. Its three-year fixed-rate is 5.59 per cent – the lowest rate in the 95 per cent loan-to-value sector – while the five-year fix is 5.99 per cent. Both carry a £599 fee.

 It follows the recent launch of the first 100 per cent mortgage to emerge since the credit crisis three years ago. Specialist bank Aldermore is offering a first-time buyer deal, which requires borrowers to have no cash deposit for their property, fixed at 6.48 per cent for three years.

 The maximum loan size is £250,000 and parents must guarantee up to 25 per cent of the property’s value by putting up their own home as collateral – something that may be a sticking point for many borrowers and their families.

 But it is an interesting development and brokers are hopeful it will tempt other lenders back into the high loan-to-value market.

 David Hollingworth at mortgage adviser London & Country in Bath, Somerset, says securing a loan can still be difficult for those with little or no equity. A spotless credit history and good income are still a prerequisite when applying for a mortgage.

 As with Aldermore, lenders may ask for a first-time buyer’s parents to act as a guarantor to the loan or use their own property as security. Hollingworth says:

 ‘Borrowers who have little or no deposit will find there are stringent checks by lenders. You have to fit the bank or building society’s criteria to be accepted for a loan.’

 What next for mortgage rates?Best buy mortgage tables: Check the latest ratesA few lenders offer deals at 95 per cent loan-to-value, including Yorkshire and Clydesdale banks. The lenders, part of National Australia Bank, have operated in this market throughout the credit crunch, although they lend on a case-by-case basis and have strict criteria.

 In addition to Cambridge, Skipton, Mansfield and Saffron building societies also have deals at 95 per cent loan-to-value. Saffron has a three-year fix at 5.79 per cent with a £195 fee while Skipton has a two-year fix at 5.99 per cent with the same fee.

 ‘The bigger deposit you can save, the better the rate you will be able to get,’ says Hollingworth. ‘Even if borrowers can get a ten per cent deposit, for example, they will find deals are more palatable.