Almas Uddin
Founder and Mortgage Advisor
01 Dec 2023
Expert Guidance on First-Time Buyer Mortgages With a 10% Deposit
Buying a property as a first time buyer with a 10% deposit is certainly possible - that means you'll be applying for a 90% LTV mortgage.
Choosing a 90 mortgage can be tricky because the loan to value is pretty high.
Although some lenders accept a 10% down payment (or even less), it's important to understand all the costs and criteria before applying.
What Are 90 LTV Mortgages?
If you're applying for a 90 LTV mortgage, you want to borrow 90% of the property purchase cost from your lender.
This calculation looks at the property's value or what you're paying for it (if the agreed sale price is below market value - perhaps to achieve a quick sale).
Lenders will want to see the valuation, and your deposit amount, to determine how much they'd be offering as the balance to cover the total cost of your first time buyer purchase.
The higher the LTV and the proportion of the cost you want to borrow, the greater the lender's risk - which is why you might find your offered interest rates are a bit higher than with a larger deposit!
What Do 90 LTV Mortgages UK Mean?
Risk doesn't just dictate whether or not a lender will accept your application - it's built into the offered interest rates.
A 90% LTV mortgage is a potential risk, as are other factors, including:
- Being a first-time buyer
- Applicants close to minimum or maximum ages
- A non-standard property
- Poor credit
- Variable employment
Are 90 Mortgages the Best Option for First-Time Buyers?
Although you can get a mortgage at 90% LTV, the costs will be higher than for a lower ratio home loan because the lender will want to offset the risk they're assuming.
Therefore, a 90% mortgage might be the best option for your first property purchase - but it's not the only one!
Examples include guarantor mortgages, shared ownership, Help to Buy equity loans or the mortgage guarantee scheme, which might support your application, improve your approval prospects and mitigate the interest rate.
Is a 90 Loan to Value Mortgage a Good Deal?
There are some great 90% LTV mortgage deals, but it's never going to be as competitive a mortgage if you keep the same interest rate for the lifetime of your repayments.
You'll undoubtedly pay less over a 25-year mortgage term if you can refinance onto a lower LTV deal - but that doesn't mean it isn't a great option as a first-time buyer!
Normally, we'd suggest a strategy along these lines:
- Apply for the best first-time buyer mortgage rates available with a 10% deposit (potentially using the guarantee scheme or another option mentioned above).
- Use a fixed-rate term, so you have a confirmed interest rate that will not fluctuate for the next couple of years or more.
- When you get to the end of that period, check how much of the capital you have repaid - and have your property revalued.
If either you've built up equity through your regular repayments, or your home has increased in value (or, even better, both!), you can refinance at a lower LTV and reduce your interest rates.
What Are the Advantages of Using 90 Mortgages UK as a First-Time Buyer?
The big plus point of a 90% LTV mortgage is that a first-time buyer can get onto the property ladder now.
Some may think it's better to wait a few more years to save a higher deposit, but the reality is that house prices are growing faster than you're likely to be able to save.
Depending on where you live and the type of home you'd like to buy, you could easily find that your 10% deposit today is worth 8% next year - as a theoretical example.
Unless you expect to come into more financing through inheritance, for instance, it's best to move now rather than later.
Some lenders offer 95% LTV or even 100% LTV mortgages, so you won't be paying the highest rates. You can work with Revolution to negotiate the terms and ensure you get the best deal possible.
What Are the Pitfalls of a 90 Percent Mortgage?
The pitfall is that while there's a lot you can do to improve your application and minimise the costs, you will have to meet a fair few criteria to secure a mortgage as a first-time buyer.
Relatively low deposits and first-time buyer status are both risk markers - you're very likely to find a mortgage, but it's not going to be as low priced as a mortgage for an established homeowner with, say, a 30% deposit.
Are There New Build Mortgages 90 LTV?
Throwing a new build into the mix can complicate things because new builds are also categorised as risky from a lender's perspective.
That's because:
- The premium you pay for buying a new property won't apply as soon as you've lived in it.
- Property sale prices for new-build estates may be inflated compared to general market averages.
- Any potential defects or problems with the home won’t be known until it's occupied - and the lender has already put forward the funds to buy it.
Lenders need to consider these factors; because their fallback position is always that they need to have security in a property worth more than their outstanding loan.
If you didn't pay the mortgage and the lender repossessed the property, they need to be confident that the sale price would cover their costs even at a lower price repossession sale.
There are many lenders comfortable with new builds, but it's worth considering if you have a 10% deposit and a choice of which property you buy.
Are There 90 Mortgages for First-Time Buyers?
Multiple lenders offer a range of first-time buyer products and support schemes, so you can certainly buy your first property with a 10% deposit.
One of the recent developments is the mortgage guarantee scheme, supported by the UK government.
Provided you have a deposit of at least 5%, you can apply to the scheme to get a government-backed guarantee against the mortgage balance.
Rates and terms will still depend on your chosen lender, but you'll get a better deal if the guarantee mitigates most of the lender's risk.
How to Get the Best 90 Mortgage Deals?
If you're after the best deal on a 90% mortgage, you can:
- Save as high a deposit as possible (even an 89% LTV might attract a better interest rate than 90%!).
- Make sure you demonstrate affordability, using your employment contract, bank statement and payslips to prove you have the means to keep up with the repayments.
- Work with an established broker to approach the most suitable lenders, review the strength of your application and negotiate terms on your behalf.
Are 90 LTV Mortgages The Best Option?
A lower LTV mortgage will ensure you get a lower interest rate. It's also important to think about whether you might make a saving if you proceed now.
Interest rates are one of many costs associated with buying a home - think about:
- Stamp Duty
- Legal fees
- Mortgage arrangement costs
While it's advisable to have a contingency fund of between three and six months' expenses to cover you for any financial emergencies, waiting or trying to save a higher deposit may not be feasible.
For example, if you live in any area where most homes are approaching the first-time buyer Stamp Duty exemption limit, you might want to buy before average prices exceed £500,000.
Tax is charged at 5% on the value between £250,000 and £925,000 - if your property value climbs to £600,000, that means you might lose a £5,000 chunk of your deposit to cover the Stamp Duty charge.
Are 90 Mortgage Rates More Expensive?
The cheapest mortgage products are always those with the lowest LTVs because a lender will offer better interest rates if they aren't taking a big risk.
However, mortgage repayments on a 90% LTV may be much cheaper than paying rent!
Whatever you decide, you can boost your prospects and obtain a lower interest rate by providing a comprehensive applicant, ensuring your credit report is up to date and working with an experienced broker to make your case.
Average 90 Mortgage Rates
Mortgage rates change quickly, and sometimes published rates are somewhat different from those you're offered.
As a couple of indicative examples:
- Halifax and Lloyds have a 90% LTV mortgage with a two-year rate of 3.54% plus £995 application fees.
- Five-year 90% mortgages from the same lenders are at 3.59% plus the same charge.
- TSB has a 90% mortgage with no upfront fee and an interest rate of 3.69%.
- Yorkshire Building Society has the same rate, plus a £495 charge and Accord has the same, plus £995.
How to Find the Best 90 LTV Mortgages
Although we've shared some of the current rates, it's important to remember that these are estimates - a lender won't confirm that you're eligible for any published rate without assessing your application for eligibility and affordability.
If you're a first-time buyer with a low deposit and have any additional issues such as bad credit or buying a property in a high-rise, for example, you may not qualify at all.
The best option is to consult a broker who understands the market, will take the time to learn about your circumstances, and make personalised recommendations about the best way forward.
How Do I Compare the Costs on 90 LTV Mortgages for First-Time Buyers?
Mortgage comparisons can be deceptive. Many offer cashback or free valuation fees - but they sometimes cost more than you realise!
For example, if you have additional costs rolled up in your repayments, a like-for-like comparison may mean that the deal, which looked less attractive, is actually favourable from a total cost perspective.
Calculators can be handy, but they're based on generic terms and the assumption that you'll meet every eligibility requirement.
We always recommend giving the team a call if you have two mortgage offers and want to evaluate which one is the better deal.
Where Can I Find 90 Mortgages UK?
Most mortgage lenders will accept a 90% LTV, and most have products suitable for first-time buyers - but not always at the same time.
It's usually unwise to apply to your regular bank without first checking their clauses and policies.
A rejection could impact your credit score and make it more difficult to achieve competitive rates with another more suitable lender.
Our advice is to use an independent, whole-of-market broker who can provide the best support and tailored guidance to ensure you select the optimal product - whether that's with a bank you're familiar with or a specialist first-time buyer lender.
Expert Support Finding 90 Mortgages for First-Time Buyers
Mortgage finance brokers has years of experience supporting first-time buyers across the UK, sourcing competitive mortgage deals and negotiating terms to ensure your mortgage product is in your best interests.
If you’d like further help finding a 90% LTV mortgage for a first-time buyer, please call us on 0330 304 3040, email us at [email protected] or complete our contact form for a call back from one of our friendly team.
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