Revealed: the crippling cost of a low deposit
Borrowers who can only manage to amass a small 5% deposit – typically first-time buyers – face monthly mortgage payments 36% higher than those who have 25% upfront, according to the latest AmTrust Moneyfacts LTV Tracker.
It calculated that this represents a £300 monthly premium for those who can’t put down as much upfront, giving wealthy homebuyers and those who can rely on parental assistance a distinct advantage.
Homeowners with a 5% deposit pay an average of £762 in monthly repayments, said Amtrust, £294 more than the £468 paid each month by those with 75% loan to value (LTV) mortgages.
However, AmTrust also pointed out that all homebuyers can currently make substantial savings on their mortgage repayments compared to previous years.
Average interest rates fell throughout the second half of 2016 with both 75% and 95% LTV mortgages reaching new record lows of 1.42% and 3.66% respectively in November, it said.
This means there remains a price differential of 2.24% between 75% and 95% LTV mortgages, accounting for the higher costs face by those with small deposits.
This gap has been widening steadily since the start of 2016, when it was just 2.03% (January 2016), and AmTrust suggested it could increase further if lenders focus their attentions on lending to those with larger deposits now that the government’s Help to Buy Mortgage Guarantee Scheme (HTB2) has ended.
Simon Crone, commercial director, AmTrust International, Mortgage and Special Risks said: “There is some positive news for first-time buyers who have seen a slowdown in house price growth and improved affordability for mortgage repayments as a result of record low interest rates over the past year. However, many analysts and industry experts predict mortgage rates will rise this year, impacting affordability for first time buyers.
“It is increasingly clear that lenders are fighting harder to attract borrowers with larger deposits than those with small ones. The number of available products, a widening price gap and lower repayments all mean those who can save larger amounts for a deposit benefit greatly when it comes to getting and paying for a mortgage.”