- Rates have also reduced with cheapest deals now around 4.9%
The number of mortgage deals available to those buying with a 5 per cent deposit has reached its highest level since the financial crisis.
Mortgage products covering 95 per cent of a property’s value rose to 442 this month, according to data from the rates scrutineer Moneyfacts.
This is the highest number recorded since March 2008, marking a 17-year high.
The low deposit deals, which are popular with first-time buyers, now make up 6 per cent of all mortgages on the market.
The availability of 10 per cent deposit mortgages also went up to its highest point in 17 years, with 845 products on the market.
Greater choice: Mortgages with 5% deposits are more widely available, which could be good news for those saving a deposit for their first home
What are the rates on 5% mortgages?
Someone taking a 5 per cent mortgage will pay higher interest each month than those with a bigger deposit or equity.
At the moment, the average interest rate on a 5 per cent deal is 5.62 per cent when fixing for five years, or 5.81 per cent on a two-year fix.
However, borrowers with a good credit rating who are prepared to shop around should be able to get a cheaper deal.
Barclays, which cut mortgage rates last week, is offering a 4.84 per cent five-year fix for those buying a property with a 5 per cent deposit.
The deal, which comes with no additional fees, would mean someone with a £200,000 mortgage would end up paying £1,151 a month, based on a total repayment term of 25 years.
Buyers can also get a 4.9 per cent two-year fix with Barclays, while Coventry Building Society is offering a 5.01 per cent fix for those wishing to lock in for three years.
Why is this happening?
Rachel Springall, finance expert at Moneyfacts, said: ‘The flourishing choice of low-deposit mortgages will no doubt be welcomed by borrowers who are either looking to remortgage or are a first-time buyer.
‘The Government has been clear that it wants lenders to do more to boost UK growth, and so a rise in product availability for aspiring homeowners is a healthy step in the right direction.’
She added that banks might also be trying to entice new customers, amid fears the recent stamp duty rise might dampen the housing market.
Chris Sykes, technical director at broker Private Finance, added: ‘The 5 per cent deposit mortgages are an absolutely vital product for the buoyancy of the property market and to give mostly first time buyers the opportunity to get onto the property ladder.’
Sykes added that small deposit mortgages were now more viable for buyers, whereas when rates were higher a smaller deposit may have made the monthly repayments prohibitively high.
‘Rates have now settled down to where a 95 per cent mortgage is a viable option again, where at points over the last few years they were restrictively expensive so meant first time buyers could have been better waiting and renting,’ he added.
Should you buy with a 5% deposit?
While the rates on 5 per cent deposit mortgages are among the highest, many first-time buyers will feel it is worth it if it enables them to get on the housing ladder and stop renting.
The average asking rent has increased 40 per cent in the last five years, rising from £1,087 per month to £1,526 per month, according to Rightmove.
However, the fear is always that if house prices were to fall, then it may leave someone at risk of negative equity and unable to remortgage to a different lender or move home.
Negative equity is when the value of a house falls below the amount left to pay on the mortgage, which is easier to do when only a small deposit has been put down.
Sykes added: ‘The major consideration is the risk of negative equity, so perhaps longer-term mortgages like a five year fix should be considered to make sure that the buyer is insulated against property price fluctuations.
‘Within that five years a good amount of equity can be built from the monthly payments, where if a two year was taken not as much progress would have been made.
‘Consider how far off a 10 per cent deposit you are, as if it would only be an extra few months to put down 10 per cent, then that will often enable you to get a lower rate – and that saving can then pay dividends in the future.’