Don't panic about mortgage costs if you have a small deposit!

Stop worrying about your mortgage cost - there are some great deals out there for those who can only muster 10% or 15% upfront.

It's easy to think that you will never be able to bag a decent homeloan if you don't have 25% of the property's value upfront. After all, the media is forever bemoaning the shortage of first-time buyer mortgages.

If you dream of getting onto the property ladder one day it must be hugely dispiriting to keep reading about how the market is effectively closed for business. You could be forgiven for sometimes wondering if you will ever get that all-important foothold on the first rung.

But do not despair.

Yes, it’s true that the mammoth mortgage freeze of the last two years is by no means fully thawed. And you still need to have a deposit of 25% or more in order to get access to the best mortgage deals. With average UK house prices topping £160,000 that’s a whopping £40,000 to find -- more if you live in an expensive region like the South East.

So it’s little wonder many young people are panicking about their ability to ever own a property.

But it isn’t all doom and gloom for wannabe first-time buyers. OK, it’s unlikely we will soon (or maybe ever) return to the heady days of 2007 when no deposit was no problem for lenders.

However affordability is improving in the mortgage market. The proportion of their income buyers spend on mortgage interest payments dropped to a five-year low in January, according to the Council of Mortgage Lenders (CML). Plus lenders are becoming more flexible about what they will lend.

Turned a corner

Before the end of 2007, borrowers used to be able to choose from literally thousands and thousands of deals. But the credit crunch brought a severe lack of funding and lenders had no appetite to take on anyone but the lowest risk borrowers.

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The sector haemorrhaged products, hitting a low of 1,209 on 1st April 2009, according to financial information provider Moneyfacts.

This may still sound like a lot of mortgages, but the figures can muddy the water because they include some duplications. For example, the same deal might be counted twice if it has two different product codes for buyers and remortgagors.

There was in fact very little for borrowers to choose from last spring, and even less for first time buyers (just 71 products for those with a 10% deposit).

However the tide has turned. Between last April and today the number of 90% loan-to-value (LTV) mortgages has more than doubled to 152 and the number of 85% LTV deals has soared by 33% in the last three months alone.

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Appetite for risk

In other words, lenders are becoming more comfortable competing for business in the higher loan-to-value brackets for those with deposits of less than 25%. This is for two reasons.

Firstly they are clearly feeling more comfortable about the future of house prices after seeing average prices edge upwards over the last year.

And secondly, the low risk mortgage market is now too competitive and the margins have narrowed so much that lenders are choosing to take a slightly greater lending risk in order to get a greater return return.

You still pay more for the privilege of course, but the more lenders that move into the 85% and 90% LTV space, the quicker we will see prices reduce here too. It’s already happening and despite the press reports there are some good mortgage deals on offer for first-time buyers.

A stand-out product in my book if you can raise 15% is Yorkshire Building Society’s two-year fixed rate mortgage at 5.39%. The rate is competitive but even better the deal is completely fee-free, plus it comes with £500 cashback on completion, which should help with some of the moving costs.

If you can only muster 10% NatWest’s fee-free two-year tracker is cheap at 4.69% -- although remember you are exposed if rates rise, as with any variable deal.

• Watch this video: Sort out your mortgage online!

I've put together my favourite mortgages for first-time buyers:

10 deals for those with 10%

*open to all homebuyers, although first-time buyers must come from Saffron branch area of Essex, Hertfordshire, Cambridgeshire, Suffolk, Norfolk and London where the postcode starts with E.

15 deals for those with 15%

*if you take the lender’s home cover the rate drops by 0.24%