The divide between mortgage rates for borrowers with 10% deposits and 35% deposits is at its closest in five years, according to new research from the Yorkshire Building Society.
Over the period, 90% loan-to-value mortgages dropping to their lowest average rate.
There is now less than a one percentage point difference between the average two-year fixed rate mortgage at 90% loan-to-value (LTV), which has this month fallen to just 3.00%, and at 65% LTV, where borrowers are pay an average of 2.03%, according to data sourced by the building society from Moneyfacts.
The difference in monthly repayments is equivalent to just £73 for borrowers with an average £150,000 loan – less than half the monthly repayment difference of £208 per month five years ago. Back in 2011, the average two-year fixed rate for borrowers with a 10% deposit was 6.40% and the average two-year fix for those with a 35% deposit was 4.04%.
Borrowers with an average two-year fixed 90% LTV mortgage are also now paying £292 less per month than in 2011, whilst those with a 65% LTV mortgage are saving an average of £157 a month compared with five years ago.
For borrowers with larger loan sizes, the difference is even more marked – based on the average two-year fixed rate, borrowers with a £250,000 loan and a ten per cent deposit will pay £471 less than they did five years ago, whilst those borrowing the same amount with 35% equity will have seen their mortgage repayments reduced by £223 a month. The difference in monthly repayments between the average higher and lower LTV mortgages on a £250,000 loan has fallen from £388 in 2011 to £137 in 2016.
Brendan Gilligan, mortgage product manager at Yorkshire Building Society, said: “The general downward trend of mortgage rates over the past five years has been great news for borrowers, but particularly first-time buyers, who tend to have smaller deposits which require higher loan-to-value mortgages.
“As our research shows, the difference in interest rate for mortgage borrowers with a 10% or 35% has shrunk to less than 1% which is pretty staggering.
“A lower mortgage rate can make a huge difference to your monthly repayments, but borrowers should also bear in mind the true cost of the mortgage, as products fees, legal costs and valuations can add significantly to the total a borrower pays over the fixed term of the mortgage. Sometimes, if your loan size is lower, it can be cheaper overall to opt for a loan which is fee-free and has incentives, such as free legal work and a free valuation.
“There are some really good-value mortgages in the market if you are prepared to shop around and calculate overall costs before making a decision.”
Rachel Springall, spokesperson at Moneyfacts, said: “There has been a great shift over recent years in the mortgage market as more cost-effective deals have appeared for borrowers and rates have continued to fall to new lows.
“The fact that borrowers can take advantage of a market low rate of 1.17% with Yorkshire Building Society just shows how competitive deals have become.
“Borrowers would be wise to take advantage of the option to overpay their mortgage whilst interest rates remain so low, this way they can increase the amount of equity in their home and reduce the term of the loan.”
