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Mortgage rates at 95 per cent fall but borrowers told to consider bigger deposits

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Written by: Samantha Partington
27/04/2021
By stretching to a 10 per cent deposit instead five per cent, borrowers can save thousands of pounds because of lower interest rates
Mortgage rates at 95 per cent fall but borrowers told to consider bigger deposits

Mortgage rates at 95 per cent are already falling but experts say borrowers should consider saving a bigger deposit to avoid paying thousands of pounds more in interest.

There are now 112 deals in the 95 per cent loan to value (LTV) tier compared to 34 at the start of April, according to Moneyfacts.

Competition from the UK’s biggest banks as they began launching five per cent deposit deals from mid-April with the backing of the government’s mortgage guarantee scheme has driven average two and five-year fixed rates down by 0.45 per cent and 0.15 per cent respectively.

Average two-year fixed rates are now 4.02 per cent and average five-year fixed rates are 4.47 per cent.

Chancellor Rishi Sunak announced the 95 per cent mortgage guarantee scheme in his Budget speech on 3 March. Lenders using the scheme pay a fee and in return the government agrees to cover a significant proportion of any losses a lender may incur if the property is repossessed.

However, the cheapest 95 per cent mortgage deals currently available both sit outside the scheme.

The lowest rate available in the 95 per cent LTV sector remains the five-year fixed rate Springboard mortgage from Barclays priced at 3.45 per cent. To be eligible for the deal borrowers need a guarantor to deposit savings in a linked account equal to ten per cent of the purchase price.

Borrowers looking to fix their repayments on a five-year fixed rate deal, and who are not able to get family assistance, can access a rate of 3.89 per cent from Coventry Building Society.

Deposit stretch

But interest rate improvements in the 90 per cent LTV market mean even bigger savings if borrowers can afford to put down a larger deposit.

Average two and five-year fixed rates at 90 per cent LTV are 0.60 per cent and 0.54 per cent lower than those on offer to borrowers with just a 5 per cent deposit available.

Small reductions in both two and five-year average fixed rates in the 90 per cent LTV tier since the beginning of April mean borrowers can now access rates of 3.42 per cent and 3.63 per cent respectively.

According to Moneyfacts, if borrowers stretched their deposit from five to ten per cent, based on current average mortgage rates, they could save £1,486 over two years and £3,379 over five years.

Eleanor Williams, finance expert at Moneyfacts.co.uk, said: “As house prices and rents continue to climb, aspiring homeowners may have been waiting with bated breath for the launch of the government mortgage guarantee scheme, supporting those with small deposits to take on a mortgage.

“However, affordability may remain a concern with borrowers regardless of the new scheme and generally consumers will find much more choice and lower rates if they can stretch their deposit to ten per cent.”

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