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Mortgage boost for borrowers with small deposits as flurry of new deals hits the market

Published 20th Jun 2012

Banks are luring buyers with small deposits as a flurry of new deals hits the market.

The number of mortgages aimed at borrowers with as little as a 5 per cent deposit to put down has more than doubled since June last year — with 63 now available to buyers.

Mortgages for those with 10 per cent have also rocketed by 54 per cent in two years, as there are now 264 deals now on the market.

David Hollingworth, spokesman with mortgage broker London & Country, says buyers with small deposits have a good choice of loans now — although there are still far fewer available than there were in 2007.

Back then, a buyer with a 10 per cent deposit would have had their pick of 1,815 possible deals.

He says: ‘There are some decent offers on the market for those with a deposit of 10 per cent — although, of course, the best deals are reserved for those with deposits of more than 25 per cent.

‘However, bear in mind that lenders still view people with smaller deposits as a higher risk. They are nervous about lending to this part of the market.

‘You will need to have an immaculate credit record to get hold of one of these deals.’

If you are already a homeowner and coming to the end of a deal, your lender’s standard variable rate will work out cheaper than most deals aimed at those with small deposits. But be warned, most standard variable rates can be raised by lenders at their whim, rather than being reliant on the Bank of England moving base rate.

Best mortgages for smaller deposits

For those with a 10 per cent deposit, the cheapest mortgages are two‑year fixed-rate deals.

First Direct’s two-year fix at 4.19 per cent with a £999 fee is the best. Monthly repayments are £808 on a £150,000 loan. The total cost over two years is £20,391.

Those looking for a five-year fixed-rate deal, with a 10 per cent deposit, should consider Yorkshire BS at 4.74 per cent with a £995 fee. Monthly repayments on a £150,000 loan are £854. Total repayments over five years are £52,235, including a £995 fee.

While the Bank of England’s base rate remains at 0.5 per cent, you may want to consider a tracker deal. However, the savings on trackers, when compared to fixed-rate deals, are not large for borrowers with small deposits.

The best lifetime tracker for first-time buyers with a 10 per cent deposit is the Co-operative Bank’s lifetime deal. This is pegged at 4.09 per cent above base rate — so gives a starting rate of 4.59 per cent. Monthly repayments are £841 and there is no fee — although there is a £140 exit penalty.

Those seeking to remortgage should opt for HSBC’s lifetime tracker at 4.29 per cent above base rate with a £999 fee. Monthly repayments are £859 and the total cost is £21,615 over two years.

But remember you also run the risk of your payments jumping if the base rate rises.

Compare mortgage costs

This is Money's True Cost Mortgage Calculator allows you to work out what a deal will really cost you by including fees as well as rates.

Those with just a 5 per cent deposit will struggle to find a tracker deal.

They will also end up paying far more in interest on a fixed-rate loan. Newcastle BS offers the best deal with a two-year fix at 5.65 per cent with no fee. Monthly repayments are £935 and the total cost over two years is £22,440.

For those looking for more certainty, Yorkshire Bank offers a three-year fixed-rate deal at 5.99 per cent — again with no fee. Monthly repayments are £966 and the total cost over three years is £34,776.

If you have spare savings, then using them to put down a larger deposit could save you thousands.

For example, a borrower with a 5 per cent deposit who took out Newcastle BS’s deal would pay £20,391 over two years.

But if they were able to scrape together a 10 per cent down payment they could apply for First Direct’s two-year mortgage at 4.19 per cent.

Source: ' ThisIsMoney '

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