90% mortgage rates: the best first-time buyer deals

90% mortgages are becoming cheaper and more widely available to first-time buyers. The government’s new mortgage guarantee scheme launches next month, and lenders are cutting the cost of getting a mortgage with a 10% deposit.

Low-deposit mortgages return

During the wake of the COVID 19 pandemic, nine in 10 90% mortgages were withdrawn from the market. Now, a year on, first-time buyers have been offered a boost by the government, with a vast majority of lenders now re-launching low-deposit deals again.

The number of 90% deals has risen significantly in the last few months, and with the government’s new guarantee scheme set to launch next week, buyers with smaller deposits of just 5% should see their options increase too. Overall, there are now 244 fixed-rate 90% mortgages available to first-time buyers, compared to 196 a month ago and just 88 at the start of December.

What does this mean for rates?

More choice is great news for borrowers, and the best rates are beginning to fall. There’s unlikely to be a huge rate cut anytime soon, however, as the biggest lenders are continuing to proceed with caution by bunching their deals together.

For example, on two-year fixes, Halifax, NatWest, Santander and TSB are all offering rates between 3.14% and 3.24%. It’s a similar story for five-year deals, with Halifax, NatWest, Santander and Virgin Money all pricing their deals between 3.41% and 3.43%.

Best rates on 90% mortgages

The average rate on 90% deals might have plateaued in the last month, but the cheapest rates on two and five-year fixes have dropped by 0.1% and 0.09% respectively in that period.

Two-year fixed-rate deals

The cheapest nationally available deals start at 2.99%, which remains well above the 1.8% recorded before the COVID-19 outbreak last March. As the table below shows, there’s little to choose between the cheapest five deals.

Data from Moneyfacts, 23 March 2021.

Five-year fixed-rate deals

Five-year deals usually have higher rates than two-year deals because they offer a longer period of rate certainty. But now, the gap in cost between the cheapest two and five-year fixes is just 0.39%.

Will 90% deals continue to get cheaper?

If you’re thinking of getting a 90% mortgage, it might be wise to wait a little longer. Banks have begun to cut their rates, and if we see an influx of 95% deals when the mortgage guarantee scheme launches next month, this may force rates on 90% mortgages down further.

95% mortgages set to make a comeback

A few weeks ago, the likelihood of 95% mortgages returning anytime soon seemed remote, but the government’s new mortgage guarantee scheme is set to change that. The scheme, which launches on 1 April, will see the government encourage lenders to offer mortgages for borrowers with a 5% deposit by taking on some of the financial risk involved. Some of the UK’s biggest lenders have already signed up, and Yorkshire Building Society has jumped ahead of the queue by launching its own 95% mortgage.

It remains to be seen what rates will be available under the scheme. Theoretically lots of competition could bring low costs, but as we’ve seen with 90% mortgages, lenders are very risk-averse at the moment, so it could be a slow burner.

Find out more:   Mortgage Guarantee Scheme: How do 95% mortgages work?

How to buy your first home in 2021

It’s a tough time to get on the property ladder, with the pandemic bringing uncertainty and the stamp duty holiday resulting in rising house prices. We’re here to help with all the advice you need, whether you’re putting money aside for a deposit or are ready to apply for a mortgage.

Find out more: Top tips for getting on to the property ladder in 2021