Accord launches low-deposit mortgage for homebuyers – but it's not around for long
Prospective homebuyers with a small deposit or little equity in their home have been hit hard this year, with lenders pulling the majority of low-deposit deals from the market. Yet there may be a glimmer of hope as a new trend is emerging – the mortgage 'flash sale', including the latest deal from Accord Mortgages, the broker-only arm of Yorkshire Building Society. But what is it and is it any good?
Update Wed 4 Nov: Accord was due to pull its deal at 8pm today, but it's been extended until 8pm on Tue 10 Nov.
At the beginning of the year, there were hundreds of mortgage deals available to first-time buyers, home movers or people remortgaging with a low deposit or little equity in their home.
Now, sadly, there are few options available, eg, there are only 14 standard deals left for first-time buyers with a 10% deposit. (The size of a deposit is essentially a percentage of the property price that you have to pay upfront, with the rest of the money borrowed from the mortgage lender.)
With so few options on the market, short-lived deals that last one or two days have become a common tactic for certain lenders – TSB and Coventry Building Society have offered flash sales in the past couple of months and now Accord's back with one. Use our Mortgage Best Buys tool to find what's currently available, and then check out our Cheap Mortgage Finding guide for how to find a broker.
How does the Accord deal work?
Accord Mortgages has launched a deal that requires a low 10% deposit. Plus, unusually, it's open to first-time buyers AND home movers.
Its latest deal has a £995 fee with a five-year fixed rate of 3.79% for mortgages up to £500,000, rising to 3.89% for mortgages between £500,001 and £600,000.
However, it's not available to anyone looking to remortgage, where you're looking to get a new mortgage on your current property.
How long is it available for?
It was set to close at 8pm on Wednesday 4 November, less than three full days after it launched. However, it will now remain available until 8pm on Tuesday 10 November (this is the deadline to apply – the application doesn't need to be approved by this time as that will take some time to go through).
Though despite the extension, this still means you'll need to have found the property you're buying, and had an offer accepted before you can even consider it. Unfortunately, if you're just starting the property search you likely won't have time to apply.
What are the pros and cons?
Buying a property is probably the largest purchase you'll make, so the notion of a rushed sale on a mortgage could appear reckless. Yet crucially this deal is only available via mortgage brokers, who should only recommend it where it represents the best fit for you. That said, there are some clear pros and cons of this deal:
- It's currently one of the cheapest 10% deposit deals available to first-time buyers and home movers. The Accord rates (3.79% and 3.89%) are among the most competitive low-deposit mortgages currently available, and while there are slightly cheaper rates out there, it's still useful as not everyone is accepted for every mortgage, so it adds choice.
Nationwide offers a 3.49% two-year fix or a 3.54% five-year fix, with upfront fees of £519 (after cashback), though these are only for first-time buyers. For home movers, the current deal from Accord can only be beaten by a three-ish year fix from Darlington Building Society, at 3.59% with a £1,119 fee.
- While this is a cheap 10% deal, by their nature 10% deals are still expensive. Due to the lack of options available, rates have crept up, so you can expect to pay about 3.5-4% if you have a 10% deposit. Rates are around 2.5-3% if you're able to sit tight and save for a 15% deposit.
Imagine you've a £30,000 deposit for a £300,000 home – that's a 10% deposit. At a typical 3.5% you'd pay £1,352/month. Yet if you could save for a £45,000 (15%) deposit, at a typical 2.5% rate you'd pay £1,144, saving £4,992 over the two years.
- You need to be quick if you want to grab one. Time is a factor, and you've got to be ready with a broker lined up to pounce during the small window for applications. Though as this is such a large financial decision, don't let any time pressure sway your judgement.
How to find a cheap mortgage deal for you
The Accord deal is only available through a mortgage broker, arguably the best way to find a new mortgage anyway. Brokers have details about lenders' criteria and are qualified to advise you on the right mortgage for you – especially important at the moment as these have been tightened across the board.
They can advise you on all deals available to brokers, including flash sales such as Accord's, plus any specialist mortgage available.
That could include guarantor mortgages, where your parents' (or another relative's) income is taken into account as well as yours, providing the family member can still cover their own mortgage. This can help you get a bigger mortgage as it's worked out on a higher income. These deals are few and far between, so it's best to speak to a broker to see if any are available to you.
Brokers charge a fee or get commission from the lender once you've taken out a mortgage – they should clearly explain their charging structure before you start the mortgage process. Find full information on how to find a broker in our Cheap Mortgage Finding guide.
Alternatives if you've only got a small deposit/little equity
If you've only got a small deposit or little equity in your home, here are some other options available to you:
- If you can stretch to a 15% deposit (even if it means relying on help), it may be worth doing so. If you want to increase the number of mortgage deals available to you and get a cheaper rate, it's worth trying to stretch to a 15% deposit if possible. This is because many lenders are still offering deals at 85% loan to value, or the percentage of the property value that you're borrowing, so rates will be more competitive. Here's an example of how scraping together a bit more can make a big difference to a first-time buyer:
Imagine you've a £35,000 deposit for a £250,000 home – that's a 14% deposit, and the top two-year fix is 3.49%. Yet if you could find an extra £2,500 to get to 15%, the top two-year fix is 2.12%, saving £2,605/year.
- If you can only afford a small deposit, have a look at specialist mortgages that can offer alternative options. If there's no way you can get up to 15%, there are still some alternative options available, including:
- Help to Buy equity loans. These are an increasingly popular means of getting on to the housing ladder, but are only for new builds that are £400,000 or under in value (£600,000 in London). Here, the Government will lend you up to 20% (40% in London) interest-free for five years. For more, see our Help to Buy Equity Loans guide.
- Shared ownership. This lets first-time buyers buy a share in the property, and rent the rest. Read page nine of our First-Time Buyers' Guide for how to apply and how it works.
- If you don't absolutely have to buy now, consider waiting. Don't stretch yourself to the limit just to get a mortgage – the overall state of your finances is more important. Remember that renting isn't a dirty word. While you might be able to get a lower deposit deal now, you may end up paying for the privilege as it's likely to be expensive.
- Lastly, you shouldn't assume you have to pay the asking price for a property – always see if you can haggle. Before you even apply for a mortgage, see if you can drive down the property's price. The less you pay, the more your deposit will be worth.
For example, if you have a £20,000 deposit and pay the asking price of £143,000, that would equal a 14% deposit. Yet if you put in an offer (that gets accepted) of £133,000, your deposit would equal 15%.
Why are lenders offering 'flash' mortgage sales?
Essentially a 'flash sale' provides a way for lenders to offer low-deposit mortgages for a limited period, restricting demand, rather than not lending at all.
David Hollingworth, associate director of communications at L&C Mortgages, told us: "With so few options on offer, those lenders that do offer products with a 10% deposit run the risk of being swamped with applications. As a result, those lenders... have tried to limit the volume through eligibility restrictions and time limits."