First time buyers paying more for mortgages due to deposit levels
January 1, 2009
A recent report has shown that those taking out mortgages with just a small deposit to put down are paying far more each year for a mortgage than those that have a higher deposit level to put down. People with lower deposits, who are often first time buyers with little in the way of savings and no previous property from which to take equity, are paying far higher interest rates than those able to put down a higher deposit, and therefore are ending up paying far more in repayments each year.
Recent research showed that someone with a small deposit of 20 percent or under could be paying thousands of pounds more each year than someone taking out exactly the same mortgage but with a deposit of 40 percent.
Many lenders have now started reserving their most competitively prices mortgage products for those with substantial deposits to put down, whilst those with lower deposits are lumbered with high interest rates and often crippling arrangement fees.
One official involved in the research said: “The mortgage market is entirely back to normal as long as you have a deposit of 40 per cent which is okay for some remortgagers - but of course that is a long way from normal and doesn’t help the housing market as by definition to move up to larger properties families need to stretch their borrowing. It is encouraging that there are good deals out there but disappointing that the choice is reduced for those with smaller deposits who will typically be first-time buyers or those who have bought in recent years and have not seen a significant rise in their homes value.”
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