Experts urge 'caution' as low deposit mortgage deals rise to highest since 2008 crash

Homebuyers are urged to approach low-deposit mortgages “with caution” as 5% and 10% deals surge to levels not seen since the 2008 financial crash. New data from Moneyfacts showed 442 mortgage offers for a 5% deposit were available in April, up from 204 in 2023. Mortgage deals for those offering a 10% deposit have also increased, hitting 845 products, up from 684 two years before.

Critics argue that these offers present a double-edged sword. While they provide a helpful route for first-time buyers into the property market, the downsides “can be significant”. Dave Seed, managing director at Qube Residential, said: “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.”

He noted that the risk is amplified by the likelihood of higher default rates among borrowers with limited financial buffers.

On average, low-deposit borrowers have a mortgage rate of well over 5%, while borrowers who pay a 40% deposit typically pay under 5%.

Fiona Peake, mortgages expert at Ocean Finance, said: “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.”

Debt support charity Money Wellness has seen a stark rise in people seeking help for “unaffordable” mortgage payment increases.

Sebrina McCullough, the charity’s director of external relations, said those reaching out have seen average payments jump from £728 in 2023/24 to £1,013 in 2024/25 - a staggering 39.1% increase.

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She added: “That kind of leap is unaffordable for many households, pushing some into serious financial difficulty.”

There are also growing concerns about the potential for a house price bubble, with more people affording larger mortgages fuelling inflated property prices that aren’t supported by the economy.

Mr Seed said: “The influx of low deposit mortgages inflating house prices [can] create a bubble that could eventually burst.”

He added: “Ultimately, low-deposit mortgages improve access to homeownership, but they must be approached with caution as they could reintroduce the seismic economic risk that once shook the global economy.”

Supporters of the deals have described them as a “real boost” for first-time buyers who’ve been priced out of the market.

Babek Ismayil, CEO and founder of homebuying platform OneDome said: “With house prices still sky-high, being able to buy with just a 5% or 10% deposit makes a huge difference — and gives more people a fighting chance of owning their own home.”

However, he warned the deals call for “real caution”, adding: “They need to be offered responsibly, with affordability and long-term stability front of mind.”