Small deposit expensive choice

Darren Cook, mortgage expert at Moneyfacts.co.uk, comments: "Borrowers with a deposit of 10% or less have seen the number of mortgages available to them drop by 45% in just one year.

"This time last year, 74.2% of the mortgages were available for borrowers with a deposit of 10% or less; today that has dropped to 29.2%. The market for these borrowers was extremely competitive, not only with first time buyers but also second time buyers who looked to climb the property ladder.

"Competition was one of the major factors when setting mortgages rates and best buys were awash with deals at 95% LTV. Today the overriding factor when setting mortgage rates is risk.

"Lenders are focusing much more on risk. They are making less products available to borrowers with a small deposit and making the few that are available much more expensive.

"In the last few days we have seen increases from Northern Rock and Yorkshire BS to their 90% LTV products. As house prices continue to fall, lenders may be worried that before the deal period ends, these borrowers may fall into negative equity, which poses a threat to the value of their recoverable security.

"If increases from these lenders were attributed to the money markets then we would have seen increases across the board, but as yet the 75% LTV products have been left untouched. Historically, 75% is considered the benchmark of conservative lending against this type of security.

"The fallout from the Lehman Brothers collapse will inevitably affect mortgage rates in the UK, particularly as swap rates continue to increase. However, it is too soon to attribute any rate increases to this as yet.

"The effect will start to be seen in the coming weeks, as lenders revise rates, get them approved internally and marketed through branches."