Mortgage Deposits.

by Mark Johnston

                                                    Mortgage deposits.

It seems that in the current financial climate home buyers are now facing a two tier mortgage market, with a growing gap between those lucky enough to be able to put down substantial deposits and those who can not.

Getting a foot on the property ladder can be a tricky business, especially if you are a first time buyer with banks demanding high deposits before they will even consider lending.

According to a study by Halifax, which was published very recently, the need for large deposits is now depressing the overall housing market.

Recent figures have shown that borrowers with deposits of 5% or 10% of a property’s value can find themselves paying more than double the mortgage interest of those with 30% or 40% equity in their property.

The problem is that lenders still view people with smaller deposits as a higher risk and are therefore more nervous about lending to this part of the market.

David Hollingworth, spokesman for mortgage brokerLondon and Country, suggests that “there are still far fewer loans available for those with small deposits than there were in 2007”.

Back in 2007, a buyer with a 10% deposit would have had their pick of possibly 1,815 deals.

Lenders however have always charged more for low deposit mortgages, but Ray Boulger, of national broker John Charcol, said “the gap has been widening in recent months”.

The latest national housing survey found that only 1 in 4 would be buyers who considered applying for a mortgage actually did so, the rest gave up because they did not think they had a big enough deposit.

This all said banks are now trying to lure buyers with small deposits as new deals hit the market. The number of mortgages aimed at borrowers with a 5% deposit has more than doubled since June last year, meaning borrowers have around 63 deals to now choose from.

There are however around 264 deals on the market currently for those buyers with a 10% deposit and this figure has rocketed by 54% in just 2 years.

Those with a 10% deposit can choose from deals such as:

First Direct offer a 2 year fix at 4.19% with a £999 fee. TheYorkshirebuilding society offer a 2 year fix at 4.74% with a fee of £995.

For those looking for a tracker mortgage the Co-operative has a lifetime deal which is 4.09% above the base rate with no fee, although there is a £140 exit penalty.

Although these appear to be decent deals borrowers will need to have an immaculate credit record in order to get hold of one off them.

Another ‘ray of hope’ for those with a 20% deposit may soon come in the form of a shared equity mortgage concept under which an investment firm, Castle Trust, would contribute another 20% of the down payment.

This would mean that applicants would only need to take out a mortgage for 60% of the property’s value. However, when the property is then sold they would have to give the firm 40% of any increase in the property’s value. This deal has not yet been approved by the Financial Service Authority (FSA).

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