Few deals for borrowers with smaller deposits

Over a third of people looking for a mortgage have a deposit or equity worth less than 20% of the property's value.

According to price comparison website Moneysupermarket.com, a third of the searches on its mortgage site in September were carried out by prospective homebuyers and remortgagors needing at deal with a loan to value (LTV) of 80% or more.

It calculated that only a quarter of mortgage products on offer were available to people with deposits of 20%, with only 4% of deals available to borrowers who only have 10% to put down.

Moneysupermarket points out that borrowers with small deposits are also being charged substantially higher interest rates than those with bigger deposits.

According to the group, the average interest rate charged on a fixed-rate deal in the 80% to 90% LTV bracket in September was 1.41% higher than the average charged at an LTV of 60%, while the best-buy two-year fix for people with a 10% deposit was 5.99%, much more expensive than the 2.99% available to those with 40% to put down.

As a result, a borrower with a £100,000 homeloan on an average two-year fixed-rate mortgage with a deposit of only 10% to 20% can expect to pay about £99 more each month, or nearly £2,400 over two years, than those with a 40% deposit or equity stake.

Hannah-Mercedes Skenfield, mortgage spokeswoman at moneysupermarket.com, said:

“When we compare the top products currently on offer with what consumers are looking for, we can see that there is some real disparity between the deals they need and what is available.

“Lenders need to take a more balanced view when offering products and place as much importance on an applicant’s ability to meet repayments as they do on deposit size. An increased focus on affordability over equity would mean lenders offering more competitive deals with a higher LTV to those who clearly demonstrate they can and will fulfil the mortgage requirements.”

Meanwhile, financial information group Moneyfacts. co.uk says there are only 101 mortgages available for people borrowing 90% LTV, up from a low of 71 in May, but well down on the 450 deals on offer in October 2008.

There has been an even greater fall in the number of mortgages on offer for people taking out a 95% loan, with just nine deals available, compared with 1,079 in July 2007, before the credit crunch struck.