Get the cheapest and the best mortgage rate

Christina Jordan rounds up the cheapest mortgage deals available, no matter how big - or small - your deposit.

Since October the winds of change have swept through the mortgage market with a rash of new deals being introduced each week. Rates have dropped - the average two-year fix for example has fallen under 5% for the first time since June, and there is now a good choice of tracker mortgages below 3%.

Though, despite significant rate cuts in October and early November, there have actually been a few tweaks upwards in recent weeks, and some best buys have been pulled - albeit with rather less fanfare from lenders than the cuts! Still, mortgages are more competitive overall now than they were two months ago, and the number of products has also risen.

Slowly growing

There has also been a rise in the number of mortgages available to those who have a more modest deposit to put down, for example those with just 15% or even 10%. These hard-pressed borrowers have really struggled to find competitive mortgage finance in the last 18 months, but according to lovemoney.com partner Moneyfacts, the number of products requiring a minimum of 15% upfront has risen from 169 to 231 since March, and those requiring a minimum of 10% have risen from 89 to 105.

Lenders are willing to offer more products to this sector because of the continuing trend of house price stability. They offer you a mortgage at a certain price on two counts: firstly your ability to pay it back taking into consideration your income, outgoings, and credit history. And secondly, the asset they are securing the mortgage against - are you buying for a fair price, what's likely to happen to the value and how big is their safety net - i.e. your deposit - if you default?

If prices are dropping, as they were in 2008, large deposits are required because they give lenders more chance of recouping their money if they have to repossess your home and sell it. If prices are stable or rising then in theory they should be able to accept a smaller deposit, while still being confident that their asset's value will cover the mortgage debt should you default on the loan.

Haves and have-nots

But while there are more products available to those with a small deposit, the truth is there is still a gaping divide between the haves and the have-nots.     

Indeed according to recent research* first-time buyers who can't raise the average 25% deposit face paying up to 50% more in their monthly repayments than those who can stump up the cash. It states that average rates for those who can put down 25% upfront are 3.14% but shoot to 4.68% for those with 20%, and rocket to 7.01% for those with just 10% upfront.

The research says that on a £150,000 loan the average borrower with a 75% loan-to-value (LTV) deal will pay £729 a month on a repayment basis. But at 80% that will rise to £858 a month and then to £1,073 a month for a 90% deal - nearly 50% more than the 75% LTV mortgage.

That's a massive price to pay for not having a large deposit, even if you have an otherwise clean bill of financial health!

Why the big difference?

Those who have a significant deposit to put down are still the borrowers that lenders really want since this type of business is low risk. Statistics show that those who can afford to put more down upfront have less chance of falling into arrears as well as less chance of falling into negative equity.

Amassing 25% may get you access to a wide range of competitive mortgages but even that is not always enough to get the best deals. A new 30% deposit tier has emerged in recent months and many lenders have their cheapest rates reserved for those who only need to borrow up to 70% of the property's value. This is of course a massive amount of money on top of all the other costs of buying a property - £48,600 on the average £162,000 property according to Nationwide.

Small deposit

At the other end of the scale are those who can only manage to find 10% of their property's value as a deposit. This is still a significant sum of course and it's the minimum that any new borrower will need in order to get a mortgage (remortgagors may find their own lender more accommodating).

While deals are still limited for borrowers with a 10% deposit, there are increasingly mortgages offered to those with 15% or 20% upfront. So if you don't have the magic 25% deposit but you do have a bit more than 10% to put down, a few more options will become open to you at least.

Of course, it may be worth continuing to save rather than buying now if you want to access more competitive deals, especially if you know prices in the area you want to buy are either still falling or are static. Only you can make that judgment though because, let's face it, most people buy property because it's the right time in their life to do so, not just because it's the right time financially. But if you are happy to wait in order to access cheaper mortgage rates and therefore lower monthly repayments, it could be worthwhile.

Below are some of the best deals for those with a large, and not so large, deposit:

Big deposit

*remortgage only

**purchase fee only, remortgagors pay £995

Small deposit

*FTB only

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Get help from lovemoney.com

If you need help getting the best mortgage use our resources.

First, adopt this goal: Cut the cost of your mortgage and pay it off early

Next, watch this video: Getting through the mortgage maze

Then, why not have a wander over to Q&A and ask other lovemoney.com members for hints and tips about what worked best for them?

At lovemoney.com, you can research all the best deals yourself using our online mortgage service, or speak directly to a whole-of-market, fee-free lovemoney.com broker. Call 0800 804 4045 or email mortgages@lovemoney.com for more help.

This article aims to give information, not advice. Always do your own research and/or seek out advice from an FSA-regulated broker (such as one of our brokers here at lovemoney.com), before acting on anything contained in this article. 

Finally, we tend to only give the initial rate of a deal in our articles, but any deal which lasts for a shorter period than your mortgage term will revert to the lender's standard variable rate when the deal ends. Before you take out a deal, you should always try to find out from your lender what its standard variable rate is and how it will be determined in the future. Make sure you take all this information into account when comparing different deals.

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