Mortgage rates for borrowers with low deposits have fallen to the lowest since September 2022, according to the latest data from Moneyfacts.
Those with deposits of 10% or even 5% will benefit from these price cuts, which come about as lenders have adjusted rates downward across the board.
Data from Moneyfacts shows that average mortgage rates have fallen overall to 4.94% for a two-year fixed rate and to 5.01% for a five-year fixed rate, which is generally good news for borrowers.
However, with lenders also pushing down the cost of low deposit mortgages, this means that a typical two-year fixed rate for those with a 5% deposit, who therefore need to borrow at a Loan-to-Value (LTV) of 95%, is 5.41%.
This compares to 5.83% a year ago and 6.55% in November 2023.
Meanwhile, Moneyfacts found that the average two-year fixed deal with an LTV of 90% – for borrowers with a 10% deposit – has fallen to 5.24%. In November 2023 this was 6.25%.
In fact, both interest rates haven’t been this low since September 2022, just before the infamous mini-budget that sent mortgage rates soaring.
The number of deals on the market with an LTV level of 95% has also increased to 465 options, the highest number since March 2008 (575 deals), according to Moneyfacts.
So borrowers with lower deposits can not only benefit from lower prices, they also enjoy greater choice.
For those looking to secure five-year deals, rates are also lower than they have been in the past two years. A 5% deposit borrower can benefit from typical rates of 5.41% today, compared to 5.93% in 2023.
Rachel Springall, financial expert at Moneyfacts, said: “Borrowers with a limited deposit of just 5% or 10% will be pleased to see the cost of a two-year fixed mortgage has fallen to a three-year low ahead of the ‘mini-Budget’ in September 2022.
“The number of deals available to borrowers with a loan-to-value ratio of 95% has also improved, with the pool of deals reaching the highest number since 2008.
“The government has been very clear that it expects lenders to do more to stimulate UK growth, so the increase in supply and the fall in costs is a healthy step in the right direction. However, deals with a 95% loan-to-value ratio represent just 7% of the residential mortgage market, so there is more room for improvement. Despite these steps, there will be borrowers who feel stuck due to a lack of supply in affordable housing.”
Due to termination of a two-year contract?
It’s not just small deposit borrowers who are benefiting from the price cuts. Lenders have made cuts on all deals, causing Moneyfacts’ average mortgage interest rate to fall below 5%.
According to Moneyfacts, the average two-year fixed mortgage rate was 6.29% in November 2023, compared to 4.94% today.
It means that someone coming to the end of a two-year fixed rate can enjoy healthy savings on their repayments.
“That,” said Springall, “is a difference of £203 per month in repayments on a £250,000 mortgage over 25 years.”
For ending a five-year fix?
The only borrowers who will be disappointed by today’s mortgage rates are those who locked in a five-year rate in 2020, when rates were at rock bottom.
Springall advised anyone in this situation to prepare for higher mortgage payments.
“Getting advice to assess the latest deals and not fall on the pullback rate is essential,” she said, “especially as the average SVR [Standard Variable Rate] amounts to 7.27%.
“It is worth noting that lenders are already working hard to reduce their mortgages to attract new customers as part of their year-end targets, supported by recent falls in swap rates. Furthermore, even existing borrowers can choose to lock in a new rate in most cases around six months before their current deal expires.”