A recent report has highlighted the ever growing gap between mortgage borrowers that have a large deposit to put down compared to those that have only a 10 percent deposit.
Over the past eighteen months lenders have been demanding higher and higher deposits from consumers in order to access their most competitive rates, and although the base interest rate is still at its record low of just 0.5 percent, many people lower deposit levels are paying far more for their mortgage borrowing than those that have substantial deposits.
Figures have shown that those able to raise a huge deposit of around 40 percent of the property value can enjoy highly competitive rates of around 2.5 percent on their mortgage borrowing.
However, those with only a 10 percent deposit, which often means first time buyers with no previous property from which to take equity, will often pay at least twice as much as this in terms of interest rate, and very often much more than that.
One industry official said that this, amongst other things, could end up stifling demand for housing, particularly amongst first time buyers. He said: ‘Although households are reducing debt and increasing savings, the upfront cost of house purchase for first time buyers is likely to stifle housing demand.’
He added: ‘Furthermore, despite the limited easing of certain lending criteria such as loan-to-values and pricing recently, from Fitch’s discussions with a number of large high street lenders it is apparent that the majority of lenders have introduced a number of other policy changes that mean obtaining a loan is more difficult.’
Another official added: ‘It is encouraging that lenders are willing to lend to borrowers with small deposits, but it is disheartening when you see the rates.’
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