A new cheapest mortgage for first-time buyers with a deposit of just 10 per cent has been launched – but not everyone is able to get it.
Mortgage rates have been dropping in recent weeks, with deals below 3.5 per cent now available for some home-movers and buyers.
But the cheapest deals tend to be reserved for those with the largest amounts of equity in their homes or deposits.
This is known as having a low loan-to-value (LTV) mortgage, and cheaper rates are offered because these households are seen as posing less risk to lenders.
However, on Tuesday, Lloyds Bank announced a series of mortgage rate cuts, including a reduction in its two-year fixed rate for buyers with a 10 per cent deposit, from 3.96 per cent to 3.9 per cent.
This makes the deal the cheapest on offer for those with small deposits.
What’s the catch?
The 3.9 per cent mortgage is available on borrowing up to £750,000.
For a household buying a £220,000 property, and taking a £200,000 mortgage, the repayments on a 25-year term would be around £1,045 per month.
But the deal is only available for those with a Club Lloyds current account.
Without being a Club Lloyds member, you pay 0.1 percentage points more on the mortgage.
To get a Club Lloyds current account, there is a £5 monthly fee, unless you pay in £2,000 or more each month.
Other cheap deals are now available if you are a member too – including a rate of 3.45 per cent on a two-year fixed rate if you have 40 per cent equity in your home or an equivalent deposit.
Experts say it’s worth checking the details of these sorts of loans before taking them.
“I wouldn’t advise buyers to switch banks solely to chase a headline rate without first confirming eligibility, affordability and borrowing limits,” says Nicholas Mendes, mortgage technical manager at John Charcol brokers.
Is the deal good news for first-time buyers?
Other brokers point out that the emergence of cheaper deals for those with small deposits is very good news.
Aaron Strutt, product and communications director at Trinity Financial, explained: “It is great to see the first-time buyer deals getting cheaper rather than just the main headline-grabbing 40 per cent deposit deals.
“This part of the mortgage market seems to be heading in the right direction, which should give first-time buyers a bit more confidence.”
How low could rates get?
Mortgage rates have been falling for weeks now, but some experts think uncertainty over the future pace of interest rate cuts could slow the speed of these reductions.
Elliott Culley, director at Switch Mortgage Finance, stressed that economic uncertainty, caused by Donald Trump’s recent tariff plans, may make some lenders pause.
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Rates tend to fall as the Bank of England base rate does, and the tariff plans could slow rate cuts if they add to inflation.
Culley said: “Whilst the threat is there, lenders are likely to pause and apply a strategy of wait and see.
“Of course, we have seen this type of tactic from Trump before, followed by the tariffs not occurring, so there may actually end up being little impact.”
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