Risky Mortgages Reach Seventeen Year High as First Time Buyers Stretch Budgets

Homeowners are taking on the largest share of high loan to value mortgages since 2008 as first time buyers push their finances to secure a place on the property ladder. Recent figures from the Bank of England reveal that 7.4 percent of new mortgage advances now involve deposits of less than 10 percent, the highest proportion since the second quarter of 2008. This marks a rise of 0.8 percentage points compared with last year and reflects mortgage lending conditions last seen before the onset of the 2007 financial crisis.

In the spring of 2007, 14.8 percent of new mortgages required deposits of under 10 percent, equating to roughly one in seven loans. Such borrowing comes at a higher risk for lenders and is typically accompanied by steeper interest rates, as buyers with limited equity are more exposed to negative shifts in property values.

The resurgence in small deposit lending underscores the difficulty faced by younger purchasers aspiring to own property. Separate research indicates an increasing number of borrowers are opting for longer mortgage terms of 30 to 40 years. Riz Malik, director at R3 Mortgages, identified expanded lending criteria and a gradual decrease in interest rates as key factors; these changes enable more prospective buyers with modest deposits to achieve homeownership.

Malik notes that this pattern is set to continue should interest rates fall further into 2026 or if conditions in the housing market improve. The push towards smaller deposits has been encouraged by recent government initiatives, including Chancellor Rachel Reeves’ call for lenders to provide access to larger loans relative to incomes, as recommended by the Bank of England.

These policies occur as segments of post crisis regulation are being eased to stimulate economic growth. The new approach enables banks to extend loans exceeding 4.5 times a borrower’s income, with the intention of improving access to homeownership.

Bank of England data shows the housing market has been recovering from previous periods of high borrowing costs. New mortgage advances increased by 36.9 percent to £80 billion over the last quarter, marking the largest quarterly rise since autumn 2020. Lending to those borrowing at high multiples of income also rose significantly, though its overall share remains below last year’s level.

According to Anthony Codling of RBC Capital Markets, the upturn in high loan to value mortgages may signal that lenders are either more willing to accept risk or believe the probability of substantial house price falls is lessening. Even so, he contends that mortgage standards remain far more robust than those seen ahead of the global financial crisis.

First time buyers able to secure property with small deposits may be in a vulnerable financial position, nevertheless, rising rents are diminishing the appeal of remaining in the rental market. Many are relying on personal savings or family support to meet initial costs and see homeownership, in spite of risks, as preferable to continued renting.