First-time buyers with low deposits are benefiting from low mortgage prices as interest rates continue to tumble this month.
Borrowers who need a loan for as much as 90% or 95% of their property’s value – in other words those with 10% or 5% deposits or equity – have been on the receiving end of competitive pricing for some time now.
And the latest data out today reveals two-year fixed rate mortgages for borrowers with a 5% deposit fell by 0.02% since last month.
Meanwhile, according to Moneyfacts.co.uk, those with a 10% deposit will have benefited from rate plunges of 0.04%.
Average rates
The average interest rate on a mortgage for people with a 5% deposit is now 3.25%, while those with 10% of their own cash can benefit from a typical rate of 2.62%.
For anyone interested in taking out a five-year fixed rate, prices are tumbling by 0.03% for 5% deposit borrowers and 0.02% for 10% deposit customers. Average rates in this five year market are now at 3.57% and 2.94% respectively.
Darren Cook, a finance expert at Moneyfacts.co.uk, explained how mortgage lenders had been competing for business by cutting in interest rates.
“During the last round of competitive cuts,” he said, “it appears mortgage providers are lowering rates for those with a smaller deposit.”
Despite prices looking more attractive for those with 5% deposits – who need to get a loan for 95% of the property’s value – first-time buyers are still being advised to squirrel together as much deposit as they possibly can.
This is because interest rates are still much lower for those with a 10% deposit – or those who need a loan for 90% loan-to-value (LTV).
Cook added: “The difference in average rates between 90% and 95% LTV tiers has historically always been greater than differences in average rates between LTVs lower down the tier scale, so it is always worthwhile for a potential first-time buyer to try to raise an additional deposit and attempt to step down the ladder to find a deal offering a more favourable interest rate.”
