Low-deposit mortgage lending in the UK has reached its highest level in 18 years, with 8.4% of gross mortgage advances in Q2 2026 being above 90% loan-to-value (LTV). This marks an increase from 8% in the previous quarter and 7% a year prior, indicating a growing reliance on higher LTV borrowing among buyers. The Financial Conduct Authority (FCA) recently consulted on changes to its mortgage lending rules, aiming to provide lenders with more flexibility to support creditworthy borrowers, including those with variable incomes or older borrowers, while upholding responsible lending principles. These proposed changes are seen as a recognition of the evolving nature of first-time buyers, who are entering the housing market later in life and often require longer mortgage terms and diverse income sources.
First-time buyers are increasingly taking out longer mortgage terms, with 68% of them in 2024 opting for terms of 30 years or more. The average age of a first-time buyer also rose from 31.3 in 2010 to 33.1 in 2024. Despite the rise in high-LTV mortgages, first-time buyers' share of overall lending remained stable at 27.3% in Q2 2026, slightly below the previous quarter and the same period in 2025. However, data from Heron Financial indicates that first-time buyers represented 45.1% of purchase cases in Q2, with an average purchase price of $339,172, a mean loan of $268,148, and a mean deposit of $71,025. Their average LTV was 81.4%, and they were three times more likely to choose five-year fixed-rate mortgages for payment certainty.
The increase in higher-LTV lending is significant because deposit requirements are a major barrier to homeownership. While lenders are offering more options for buyers with sufficient income but limited capital for a large deposit, the FCA emphasizes that this is not about lowering lending standards. The resilience of the market is highlighted by the fact that only 1% of mortgages taken out since tightened standards in 2014 are in arrears. The overall value of outstanding mortgage balances in arrears fell by 1.9% in Q2 2026 to approximately $19.7 billion, reaching their lowest point since Q3 2023.
Despite the positive trends in lending volumes and higher-LTV products, the market faces continued pressure from elevated borrowing costs. The share of mortgage advances priced two to three percentage points above the Bank Rate increased to 3.1%. Analysts like Rachel Springall from Moneyfactscompare.co.uk suggest that a significant drop in mortgage rates is unlikely in the near future, with some economists even predicting a potential Bank Rate hike as early as November. Buyers utilizing high LTVs are cautioned about the risks of negative equity if house prices decline, emphasizing the importance of seeking sound advice and considering mortgage overpayments.
