Those saving for their first home are being urged to try and raise additional cash for the deposit as rates for customers with a 5% deposit have gone up by more than for buyers with 90% deposits.
Currently a customer taking out a two-year fixed rate mortgage with a 5% deposit will pay an average rate of 3.28%, which is 0.05% higher than last month.
Meanwhile, those taking out a two-year fixed rate with a 10% deposit will pay 2.65%, a rise of only 0.01% since last month.
The news will come as a blow to small deposit borrowers, as recently this market has been benefiting from falling rates. But this month the trend seems to have reversed.
And Moneyfacts.co.uk, which has compiled the data, thinks lenders are set to keep increasing the rates for those with 5% deposits – or those who need to purchase 95% of their property’s value – in the coming months.
Darren Cook, finance expert at Moneyfacts, said he thought the gap between mortgages for people with 5% deposits and those with 10% deposits would widen in the coming months.
He added: “The difference in average rates between 90% and 95% loan to value (LTV) has historically always been greater than difference in average rates between LTVs lower down the tier scale, so it’s 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 mortgage with lower interest rates.”
Affordability
The good news for buyers is that although rates for customers with small deposits are creeping up, nearly all the products available to them offer a maximum mortgage term of either 35 or 40 years.
Indeed, the vast majority are also available up to a maximum age of 75 or above at the end of the mortgage term.
Cook explained: “This enables borrowers to lower their monthly repayments by spreading the costs, which as a result makes them more affordable – helping to pass stringent affordability tests when applying for a mortgage.”
