Mortgage lenders look to entice first-time patrons with low deposit offers  – and it is working…

Mortgage lenders are locked in a battle for first-time buyers, offering them bigger home loans and lower rates in a bid to win them over.

First-time buyers with smaller deposits have continued to see new deals appear in recent months.

The number of mortgage options aimed at those buying with a 10 per cent deposit is at a record-high, according to the latest data from Moneyfacts.

Meanwhile, those with a 5 per cent deposit have the highest number of options since March 2008, albeit the electronic monitoring of mortgages by Moneyfacts only started in July 2007. 

Overall product choice rose monthly, to 7,537 deals, meaning there are now 1,000 more deals available than a year ago.

The greater choice seems to be making a difference. First-time buyers purchased 34.3 per cent of homes sold across Britain in January, according to the Connells Group – the highest share recorded in any January since its records began in 2006.

The surge in first-time buyer activity is likely being aided by the fact that mortgage lenders are coming up with all manner of ways to entice aspiring homeowners.

Some are trying to appeal to those earning well, but without the savings to put down a deposit.

Most recently, Santander came out with a 2 per cent deposit mortgage for first-time buyers, as long as it is not below £10,000.

It means an eligible buyer could purchase a £500,000 home with just a £10,000 deposit. 

Santander’s ‘My First Mortgage’ product is a five-year fixed rate deal, with a rate of 5.19 per cent, zero product fee and £250 cashback.

Someone buying a £500,000 property with a £490,000 mortgage could expect to pay £2,689 a month if repaying the whole loan over a 30 year period.

And last month, Hanley Economic Building began offering renters the chance to get on the property ladder without saving a deposit after the mutual launched a 100 per cent mortgage. 

Home buyers can borrow up to £350,000 with an interest rate of 5.79 per cent. It’s only available as a five-year fixed rate. 

They need to earn at least £25,000 per year and the loan will also be capped at 133 per cent of their current monthly rent. 

Applicants will also need to prove a 12-month track record of paying rent on time. 

The Family Building Society also yesterday relaunched its 100 per cent mortgage deals aimed at first-time buyers without a deposit.

A number of lenders are also now lending first-time buyers more than previously with some offering them the ability to borrow as much as six times their annual salary.

For example, Nationwide Building Society’s Helping Hand mortgage enables first-time buyers to borrow up to six times their income on a five-year fix. 

They’ll need a minimum income of £30,000 a year and a 5 per cent deposit. 

Some lenders are willing to go even further. April Mortgages will lend up to seven times a person’s salary with rates ranging between 4.99 and 6.39 per cent depending on how long someone fixes is for and how big their deposit is.

If the buyer doesn’t have a deposit, April may still lend to them on the basis they sign up to a 10-year fix, albeit it comes with a 6.18 per cent rate.

On a £200,000 mortgage being repaid over a 30 year term, that would equate to paying 1,223 a month.

Mortgages look affordable for those with deposits

Improving mortgage rates meant that 93 per cent of new homeowners In January locked into a sub-5 per cent deal, according to Connells Group.

This is the highest share since Autumn 2022, and up from 67 per cent in January last year.

Nearly one in four first-time buyers took out a mortgage with a 10 per cent deposit or less, the highest proportion since 2008.

First-time buyers with deposits of 10 per cent are finding their rates are only around 0.5 percentage points more expensive than homebuyers with the biggest deposits. 

Lloyds Bank is offering a two-year fix at 3.97 per cent with a £1,099 fee to first-time buyers, albeit they’ll need to hold a current account with the bank. 

Meanwhile, Barclays is offering a 4.17 per cent five-year fix with an £899 fee.

Someone getting a £200,000 mortgage with Barclays and repaying over the typical 30 year repayment term could expect to pay £974 a month. 

Even those buying with a 5 per cent deposit are paying around 0.75 percentage points more on a five-year fix than those with the biggest deposits.

Leek Building Society is currently offering first-time buyers a 4.56 per cent deal with a £995 fee.

On a £200,000 mortgage being repaid over 30 years that would equate to paying £1,021 a month.

Lower mortgage rates remain the driving force behind the revival in first-time buyer activity, according to Connells Group.

It says the average new first-time buyer taking out a fixed-rate mortgage in January secured a rate of 4.41 per cent, down from 4.86 per cent a year earlier,

For someone borrowing £200,000 over 30 years, this reduction equates to a saving of around £3,240 over the five-year fixed term.

Shaun Sturgess, director at Swansea-based Sturgess Mortgage Solutions thinks that things are looking positive for first-time buyers at present.

He said: ‘2025 was a year of innovation for lenders and first-time buyers could benefit in 2026 as a result. In fact, that’s already happening.

‘We are seeing really strong activity from first-time buyers and home movers, particularly in affordable areas around Swansea, Cardiff and in the Valleys, where value for money remains a major draw.

‘There are now more loans available at higher loan-to-values and, if people lock in for longer, they can often borrow more. 2026 is shaping up to be the year more aspiring first-time buyers finally get onto the ladder and out of the rental market.’

Omer Mehmet, managing director at Welling-based Trinity Finance, also thinks the mortgage market is moving in the right direction for first-time buyers.

‘Lenders have been looking at all kinds of ways to help boost affordability and the result is more choice for those seeking to buy their first home,’ said Mehmet.

‘Better still, we’re expecting mortgage rates to start to edge down again as the Bank of England believes inflation will soon be under control and, if it is, said it will cut rates. Overall, things are looking positive right now.’

Are more first-time buyers getting on the ladder?

First-time buyers have certainly played an increasingly prominent role in the housing market.

They are buying up more than a third of all the properties at present – more than double the 16.8 per cent recorded a decade ago by Connells Group.

But they are also making up a greater proportion of all house purchases, partly because buy-to-let investors and home movers are not being so active.

In some regions, first-time buyers appear to be very much driving the market. 

In London, first-time buyers now account for 48.3 per cent of purchases, up from 22.4 per cent a decade ago, partly reflecting the fall in existing owners choosing to move or landlords buying. 

Meanwhile, first-time buyers made up the largest share of homebuyers in the South East, East Midlands and West Midlands since Connells records began in 2007.

Aneisha Beveridge, research director at Connells Group thinks first-time buyers have been the biggest beneficiaries of falling mortgage rates, particularly where higher loan-to-value products have become more competitively priced. 

‘Rising first-time buyer numbers should also help support overall transaction levels this year, especially at a time when existing homeowners are moving less often. 

‘And because many of these purchasers are currently renting, a steady transition into homeownership could gently ease pressure in the lettings market, taking a little of the heat out of rents if the trend continues.

‘The Bank of England’s tighter-than-expected vote last week suggests mortgage rates could drift down a little further, which should support activity over the coming months.’