First-time buyer mortgages slashed by 90%: when will the restrictions end?

Mortgages for buyers with five and 10 per cent deposits have all but disappeared; when can first-time buyers expect the situation to improve?

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This week, the extent to which coronavirus has damaged the availability of mortgages for first-time buyers has finally emerged, and it's very worrying. New figures released by This Is Money show that the number of mortgages available to buyers with a 10 per cent deposit has been slashed by a whopping 90 per cent. And if you only have a five-per-cent deposit? Your options have been reduced by 95 per cent.

These figures are shocking and are pointing to a growing possibility of a self-inflicted property market collapse if the situation with mortgage lending doesn't improve in the coming months. This is because if first-time buyers are excluded en masse from the property ladder, this will send shock waves through the rest of the market, with those wishing to sell their first home to move up to a bigger property no longer able to do so. 

Property chains present problems for buyers, sellers, and estate agents, often delaying house sale transactions by months. Imagine this scenario: a home owner ready to sell has been waiting on a buyer who was perfect and had an agreement in principle from a lender before lockdown. That was back in March. Now, with the situation so drastically changed, and the buyer no longer able to go ahead and secure the mortgage, where does that leave both buyer and the seller?

But what about the much-reported post-lockdown bounce back, you'll ask? With estate agents claiming record transaction levels, are the prospects really so dire for the property market? 

The truth is, we don't know the exact makeup of the buyers rushing to the market post-lockdown, but our hunch is that the majority of them aren't first-time buyers, but second-steppers who had had everything agreed and were waiting to complete. After all, the increased property transaction numbers will at least in part be down to the simple fact of zero activity for nearly two months. What will the situation be like in two to three months' time when there suddenly is a dearth of first-time buyers able to secure a mortgage? 

One hope is that once mortgage lender employees go back to work and are once again able to process applications at full capacity, things will go back to a kind of normal. It will also become very clear how many will lose their jobs by August, when employers will be expected to contribute more towards furloughed workers' salaries. It sounds brutal, but once those figures are in, lenders will have more confidence lending to those who have held on to their jobs. 

Our advice? If you're a first-time buyer with a small deposit, sit tight until at least August. But if you really, really want a mortgage now – say, because you've found your dream home – go to a good online broker to maximise your chances. They won't charge you anything, but you will still get to speak to an advisor to help you make the right choice. We've partnered up with online mortgage broker Habito: they are whole of market, and they earn commission from the sale of the property, not from you. Use their free comparison tool below to begin you mortgage journey.

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