Buying a home after coronavirus lockdown: higher-deposit mortgages mean London first-time buyers have to put down more than £70k

Would-be first-time buyers in London face trying to save eye-watering deposits of more than £70,000, amid stricter criteria from lenders as a result of Covid-19 lockdown’s impact on the mortgage market.

A new study by property portal Rightmove highlights the “deposit gap” across 20 English cities as the housing market reopens, with first-time borrowers being asked to find deposits of 15 per cent loan-to-value – rather than 10 per cent – to meet eligibility criteria.

The biggest deposit is needed in London. The average asking price in the capital of a first-time buyer home — categorised as having a maximum two bedrooms — reached £477,569 in April, a two per cent increase on the same month last year.

This means an average 15 per cent deposit of £71,635 is currently required to secure an 85 per cent mortgage, creating an average deposit gap of nearly £24,000 when compared to a 10 per cent deposit requirement of about £47,000.

The average asking price in England as a whole is significantly less at £241,891, so a 10 per cent deposit is currently just over £24,000, jumping above £36,000 if 15 per cent is required.

Have asking prices dropped for first-time buyers?

Many first-time buyers who can scrape up the required higher deposit will no doubt be hoping to bag a good buy after a seven-week pause in the market.

However, prices of typical first-time buyer homes have generally remained static across the country.

Rightmove’s commercial director and housing market analyst, Miles Shipside, comments: “Many first-time buyers looking to grab a bargain right now may find they’re disappointed, as on the whole asking prices of all first-time buyer properties up for sale have been holding up.

“There will of course be some sellers who need to sell quickly and may be willing to negotiate on price, so it’s worth asking your local agent if there are any in this predicament, if you do now need to lower your budget. However, where demand is outstripping supply and it’s an attractive property in a desirable location, then an offer closer to the asking price will have a better chance of being accepted.”

The impact of coronavirus on first-time buyer mortgages

Recent data from online mortgage broker Trussle highlighted the disproportionate impact the locked-down mortgage market has had on first-time buyers, with home loan applications down by 53 per cent between March and April.

Banks pulled more than half of their products, shut the doors to new applications and stopped physical mortgage valuations.

Higher loan-to-value mortgages are creeping back in, with Trussle highlighting a 90 per cent mortgage on offer from HSBC as one of its best two-year fixed-rate deals.

Borrowers seeking 95 per cent mortgages will face higher interest rates, as a small deposit will be deemed as high risk by lenders in this market.

“If lenders are able to offer more attractive lower-deposit mortgages, it would help sustain the recovery in activity,” said Miles Shipside. “If it can be done responsibly, with strict affordability criteria, then a return to more mortgage offers of 90 per cent loan-to-value, or even 95 per cent, could make a huge difference to someone having enough money now for a deposit or having to save up for another few years.

“First-time-buyers will be keeping a close eye on how lenders’ deals unfold.”

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