Hope for buyers with small loan deposit

There are now just over 1,000 different mortgages on the market for people with 20 per cent or less to put down, up from only 523 in December last year, according to Moneyfacts.co.uk

The biggest jump has been in deals for people with a 20 per cent deposit, with these soaring by 151 per cent to 384 during the past year.

There has also been an 85 per cent increase in choice for people borrowing 85 per cent of their home's value, while the number of different products for borrowers with just a 10 per cent deposit has jumped from 116 to 204.

But the increase in product availability has not been matched by a big fall in the interest being charged on some of the deals, with lenders continuing to charge significantly more to people with only small deposits.

The average cost of a loan for someone borrowing 90 per cent of their home's value is now 6.09 per cent, down from 6.41 per cent a year ago, but still significantly higher than the average interest rate charged on a two-year tracker for all loan to value ratios (LTVs) of 3.48 per cent.

The interest charged on mortgages for people with a 15 per cent deposit has seen a bigger drop, falling from an average of 6.40 per cent to 5.09 per cent during the past 12 months, while loans for people with a 20 per cent deposit now typically charge 4.63 per cent, down from 5.58 per cent, although these are still well up on the rates paid by people with bigger equity stakes.

Moneyfacts said during the past year most lenders had moved back into offering deals at 85 per cent LTV or lower, but 90 per cent mortgages still remained a "step too far" for some groups, and the lack of competition in this area of the market was keeping rates high.

The improvements in both availability and rates does not appear to have done much to help hard-pressed first-time buyers get on to the property ladder.

The typical first-time buyer is still putting down an average deposit of 24 per cent, broadly unchanged from a year ago, according to the Council of Mortgage Lenders.

The group's figures also show that there has not been an increase in the number of people buying their first home, with 55,900 people getting on to the property ladder during the third quarter of the year, compared with 58,800 in the third quarter of 2009, and well down on levels of more than 100,000 a quarter seen during 2006.

Michelle Slade, spokeswoman for Moneyfacts.co.uk, said: "Borrowers with smaller deposits are seeing signs of improvement, but the rates on offer to borrowers with just a 10 per cent deposit remain high.

"House prices continue to fall in many areas and worries over borrowers getting into negative equity may mean that rates for those with a small deposit remain high for some time to come."