There is No Mortgage Choice If You Only Have a Small Deposit

There is No Mortgage Choice If You Only Have a Small Deposit

Figures released today have shown that there are only 36 mortgage options available for First Time Buyers with less than 10% deposit. This is 80% fewer than this time last year (when the Credit Crunch had already begun).

My own research has shown that these figures are actually an overestimate. I have found only 11 choices for those First Time Buyers with less than 10% deposit. Here are the lenders with deals available through brokers:

Bank of Ireland/ Bristol and West
BM Solutions
First Trust Bank
Ipswich
Royal Bank of Scotland

Now, unfortunately for First Time Buyers, the Ipswich Building Society only lend in Norfolk, Suffolk and Cambridgeshire, but even if they did it’s hardly something to celebrate over. The cheapest rate available is 6.94%, and almost all of these deals also carry a Higher Lending Charge.

The standard advice given by industry insiders is “save up for a deposit”, but this doesn’t really fit in with the real world.

Take a young man looking to get on the housing ladder. The cheapest flat he can find is on the market for £100,000, so he needs a £10,000 deposit. He also needs to find a further £1500 to cover survey and solicitors costs etc. He makes £25,000 a year so affordability isn’t an issue. Now our young chap, like all young chaps, drives a nice car, for which he pays £200 a month on car finance. He rents a room at £80 per week. He goes out at the weekend, spending about £200 a month, and his car insurance is £150 a month. No-one can say that I’ve particularly egged these figures could they? In this instance then, our man has about £1500 a month coming in, and £900 going out before he has even ate or put any petrol in his car. If we are optimistic and say that our fellow can save £300 a month, it’ll still take him almost 4 years to save up. Even the biggest pessimists know that prices will be back up by then (we live in the most overcrowded country in Europe!)

There is however a method of circumventing all this hassle and that is by buying with a vendor gifted deposit. In the above scenario, our chap would haggle the vendor down to £90,000 and use the reduced amount as his deposit. In reality this reduces the amount of lenders available, but the rates actually improve! This sounds crazy but it is true – one person saves for 3years and actually ends up with a worse rate than the person who plays the system!

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