The Bank of England’s latest data reveals that the proportion of new mortgages with deposits below 10% has climbed to a level unseen since the run-up to the 2008 financial crisis. This shift comes amid rising house prices and tighter lending criteria, which are squeezing first-time buyers and pushing them towards more leveraged borrowing.
For investors, this signals a potential increase in market vulnerability. Historically, a higher share of low deposit lending has correlated with greater default risk and price volatility. While the current economic environment differs from 2008, the reliance on minimal equity stakes means that any downturn in house prices could lead to rapid negative equity scenarios, particularly for recent entrants to the market.
From a portfolio perspective, this trend may warrant caution. Areas with a high concentration of recent low deposit mortgages could face sharper corrections if interest rates rise further or if economic growth slows. Investors should consider the loan-to-value profiles of local markets and monitor affordability metrics closely, especially in regions where wage growth lags behind house price inflation.
The data also points to a broader affordability squeeze. With deposits remaining a significant barrier, more buyers are reliant on lenders willing to accept higher risk. This could impact the quality of mortgage books and, by extension, the stability of housing demand. For buy-to-let investors, understanding these dynamics is critical as tenant demand and property values may be more sensitive to economic shocks than in previous cycles.
