Probably the hottest topic in the mortgage world right now is the impact the level of mortgage deposit you have, has on the availability, and cost of, loans you will be offered.

This is an area where a mortgage broker can be invaluable, as mortgage brokers often have access to lenders and products that are not accessible to the general public

What is considered a small deposit?

In mortgage terms, anyone with a deposit (or equity) of less than 25% of the value of the property is deemed ‘high risk’.

It is important to qualify what is meant by that, and it is that you as the borrower pose a risk to the bank of negativity equity i.e. the lender losing money if you stop paying the mortgage and they need to recoup the loan.

Why 25%? That is because house prices have never gone down by more than 25% in any one cycle. So if you put down a 25% deposit + on day one, stop paying the mortgage day 2 and the lender has to repossess the property at some stage in the future, they are almost guaranteed to recoup their money.

If you have less than 25%, and the smaller the deposit the greater the risk to the mortgage lender, as if you only have say a 5% deposit, it doesn’t take much for the lender to lose out if house prices dip a touch, all the missed payments and interest get added up and they are very quickly out of pocket should they need to repossess the property.

While this risk is low as repossessions in the UK are low overall (earlier in the year, figures from UK Finance suggested just 59 out of 100,000 mortgage holders end up in repossession) if you were lending someone money, you would also want the best chance possible of recouping that money if things went wrong!

This also explains why mortgage rates decrease the larger your deposits get, from the smallest deposits of 5% attracting the highest interest rates, down to the very lowest when you have 40% or more.

Why are lenders offering less choice to those with smaller deposits?

With house prices soaring, it does seem counterintuitive to reduce the availability of smaller deposit mortgages. Data from MoneyFacts (see below table) shows just how sharply choice has fallen post lockdown. The reason for this happening seem to be twofold:

  1. Lenders are very concerned about the knock on impacts of what Covid will have on the economy longer term. Once the stamp duty holiday and various furlough schemes end, will house prices keep rising?
  2. A simple lack of capacity. With lenders severely reduced in terms of productivity, due to not being able to use processing units in places like India, and with staff at home having to manually underwrite many cases that would have been automated previously, then you layer on the fact many staff have been seconded to focus on things like Bounce Back Loans and CBILS, that is a recipe for a slight to safety. If you think about your own actions, if you are extremely busy you would naturally focus on lower risk and more profitable activities which I think is why the pull back from this area has been so stark.

90% and 95% LTV mortgage analysis


March 2020

June 2020

July 2020

Product count 90% LTV (fixed and variable rate products)




Product count 95% LTV (fixed and variable rate products)




Product count two year fixed rate at 90% LTV




Product count two year fixed rate at 95% LTV




Product count five year fixed rate at 90% LTV




Product count five year fixed rate at 95% LTV





How long is this likely to go on for?

As alluded to above, this is very much Covid related. When we see an end to social distancing and periodic geographical lockdowns, this should start to ease up.

The schemes mentioned above will no doubt have come to an end at that point as well, so once capacity is up within mortgage lenders and the long term economic impacts are clearer, you should see more of a return to ‘normality’ on the (rather large) assumption that house prices aren’t falling at that stage. They don’t need to be going up, just not down. A topic I am sure we will be looking at a lot in due course…

Is there anything I can do about this?

In a word, no. There are a few schemes where you can utilise equity within family members property, however they are so niche and there is such a premium charged for doing so, it doesn’t make a lot of sense to use them to bolster your deposit (and that is in the assumption you have family members who can, and will, assist you).

Outside of a ‘normal’ purchase, you can look at things like Shared Ownership or Help To Buy mortgages. These do offer different options of lessening yours and the mortgage lenders risk. There are stipulations and restrictions to these schemes, so it would pay to speak to a qualified mortgage broker to assess what works best for you before acting.

As alluded to above, it could well be well into next year before we see some relaxation of current mortgage lending policy. But as mentioned above, only a high quality mortgage broker will be able to look at all options for you and advise you based on the exclusive terms they have available. Naturally we feel we are well placed to assist, so if you would like to talk to one of our team they would be very happy to talk you through how to get the best possible outcome for you.

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