The mortgage price war which raged through much of 2019 has carried on into the new decade with lenders competing to snap up first-time buyers.
Would be homeowners who can only raise a small deposit are enjoying some of the biggest cuts in mortgage rates as lenders compete for their business.
Finance data website Moneyfacts has revealed that borrowers with a 5% deposit have seen the average two-year fixed-rate mortgage drop to 3.24% and there are even cheaper deals available.
The interest rate for the average five year mortgage dropped to 3.55% providing close competition for the shorter deal.
Darren Cook of Moneyfacts said: “This is fantastic news for first-time buyers, who are the lifeblood of the mortgage market.”
Peter Gettings from London & Country said: “House prices are still high compared with incomes and it’s difficult for many buyers to build a bigger deposit, so more and better low-deposit deals ultimately enable more people to buy.
We’ve definitely seen lenders pay more attention to low-deposit borrowers over the past year.”
But not everything in the mortgage market is rosy with the Bank Of England becoming concerned at the level of risky mortgages being offered.
They are concerned at the ultra low rates being offered by lenders trying to attract business because the share of riskier mortgages is now at its highest since the financial collapse of 2008.
The Bank has already warned that it is watching developments like a hawk.
One of the main causes of the price war is the availability of money to lend brought about by the Bank’s insistence that the high street banks ring fence their domestic business from the riskier foreign investment market.
Before ring fencing the banks were free to switch their money from one division to another at will, but the new rules insist that domestic funds should be used for domestic business so the banks find themselves with more money to lend and are having to fight to tempt new customers.
Sam Woods, chief executive of the Prudential Regulation Authority (PRA) said there had been ‘a significant increase’ in lenders offering high risk loans and warned it might step in to make sure things didn’t get out of hand.
Mortgage expert Ray Boulger said: “Banks’ appetites for risk has gone up, because they must compete on price.”