Experts Warn Low Deposit Mortgages Could Trigger Another Housing Crisis
- Surge in low-deposit mortgages raises red flags for experts
- 5% deposit offers hit highest level since 2008 crash
- Risks include higher interest rates and potential house price bubbles
- Borrowers warned about financial strain as monthly payments soar
Experts are sounding the alarm as low-deposit mortgage deals make a significant comeback, with 5% and 10% deposit offers reaching levels unseen since the 2008 financial crash. New figures from Moneyfacts show that in April, there were 442 mortgage products available for those offering a 5% deposit, up from just 204 last year. Meanwhile, the number of 10% deposit deals has also risen to 845, compared to 684 in 2023.
Though these offers could help first-time buyers gain a foothold in the housing market, critics are warning of the significant risks. Dave Seed, managing director at Qube Residential, noted: “As seen in 2008, low-deposit mortgages inherently carry higher risks and leave borrowers exposed. With minimal upfront equity, borrowers are more vulnerable to negative equity if property prices decline.”
The surge in low-deposit mortgages comes at a time when many borrowers are already struggling with higher interest rates. According to Fiona Peake, a mortgage expert at Ocean Finance, “Low-deposit mortgages tend to come with higher interest rates because the lender is taking on more risk. When rates are already a stretch for many households, it could put extra pressure on budgets.”
On top of that, charities like Money Wellness are reporting a spike in people seeking help for “unaffordable” mortgage payments, with some seeing their monthly costs rise by as much as 39% year-on-year. The combination of higher rates and rising property prices has sparked fears of a housing bubble, with Dave Seed suggesting that the influx of low-deposit mortgages could inflate house prices to unsustainable levels.
While low-deposit deals offer a “real boost” for first-time buyers, as Babek Ismayil, CEO of OneDome, points out, they need to be introduced responsibly. “They need to be offered responsibly, with affordability and long-term stability front of mind,” he stressed.
As these offers continue to rise, borrowers are urged to approach them with caution, keeping an eye on their long-term financial stability.
Tom Church, Co-Founder of LatestDeals.co.uk, said: “While low-deposit mortgages may seem appealing, the financial risks can’t be ignored. Always be sure to consider the long-term impact before jumping in.”
People are desperate for mortgages though as rental costs are also increasing at a huge rate. It feels like a no win scenario for many with the chronic undersupply of housing. I've read of people going into extreme economy mode to afford their mortgage. That might mean a couple giving up their cars and cutting other day to day expenses to the bone. The beginning of the mortgage is the hardest bit. My mortgage was very high at the beginning but is very manageable now. I made overpayments so what used to be over £500 a month is now under £200 and I'm just about at £10k of the remaining capital payments.
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If you are forced to rent what will happen when you reach retirement and rental costs are going to £3k plus a month. We are now at 70 million population on an island that can only realistic support 30-40 million people for food security etc. No reason to think the chronic undersupply of housing won't get much worse.
It's hard to think there will be a huge crash in housing prices with the chronic undersupply. We have seen huge decline in manufacturing and government debt spiralling and the economy is in a terrible state and yet housing is still extremely expensive as perhaps 3 people/couples are chasing every property. I've seen videos on youtube of people who rent housing and have made staggering incomes because they bought property when at much lower cost but has seen their rental income quadruple as rental costs has matched property values. People that no longer need to work because they have just 3 or 4 rental properties. Each providing a net income of over a £1000 a month. I suspect at some point it will become the norm for one house to be split into 4 micro flats as property is getting unaffordable and like Japan their solution was micro flats in order to provide affordable housing in a very over-populated country. We will have to go the same way unless we want 20% of the population homeless.