It is well-known that many first-time home buyers struggle to save enough cash to put forward as a deposit on their first home. Now new research has revealed this particular element is making it far more expensive for a first-time buyer to purchase a property as opposed to those who are already on the ladder.
Moneyfacts has looked into the average rates charged for people getting a mortgage. It has found there is a big discrepancy between those who only have a small deposit available (typically first-time buyers) and those who can put down a much larger sum.
5% deposit means much higher rates
For example, a first-time buyer who can put down a 5% deposit on their new property is likely to be provided with a mortgage with an interest rate of 5.27% on average.
On contrast someone who can put down a 35% deposit is able to get a much lower rate. On average this was found to be 2.46% – less than half the rate offered to those with a smaller deposit.
Over the course of a year someone with a deposit of 5% who is borrowing £150,000 to buy a property would end up paying £2,772 more for their mortgage. This worked out to £231 every month.
A report from Genworth agrees with these figures
Another source, Genworth, has put together a similar report and come out with broadly-similar figures as well. Their report also indicated the higher number of 95% LTV (loan-to-value) products that are available now as opposed to a year ago. Almost two-thirds of these are provided as part of the Help to Buy scheme aimed at those who want to buy their first homes.
Clearly it makes sense to put down as big a deposit as possible when buying a home. The more you can put down the cheaper your mortgage rate is likely to be. However this is easier said than done when it comes to first-time buyers, who are very likely to be struggling to bring together enough cash for a 5% deposit, let alone anything bigger.
First-time buyer figures are down
Indeed, figures in the last few days have shown that the number of first-time buyers has dropped in September when compared to August. Numbers were down by 3% during that period of time. However this also needs to be compared to the same month last year. This comparison tells us that figures are still 16% up on September 2013.
Rising house prices mean higher deposits to be found
As house prices fluctuate, the actual amount of money needed for a 5% deposit will change too. If prices rise people will need to save more in order to meet the minimum 5% needed for a deposit. Those with bigger savings are less likely to be affected by this, but as we have seen here, rising house prices could still play a part. It will be intriguing to see whether the discrepancy between rates for certain levels of deposits will continue.