Borrowers with smaller deposits, or those with less equity, could pay £174 per month more on their mortgage compared to those who borrow the same but with larger deposits.
This is according to the latest analysis from Moneyfactscompare.co.uk, which delved into the size of first-time buyers’ deposits and their borrowing levels. This has revealed a so-called two-tiered market, in which buyers are divided between those with higher deposits who can access better, cheaper rates and those who cannot.
It found that almost a third (30%) of first-time buyers opted for 90% loan-to-value (loan-to-value), while 12% looked at 95% LTV options.
It suggests that many of those taking their first step onto the property ladder had a deposit of 5% to 10%.
Moneyfactscompare’s calculations suggest these first-time buyers have savings of between £13,560 and £27,120, based on the average UK house price of £271,188.
But the analysis also found that a third (31%) were looking for mortgages with an LTV of 75% or less, which are aimed at people with generous deposits of 25% or more.
It said a 25% deposit on the average UK house price would require a deposit of around £67,800, highlighting that there is a distinct group of first-time buyers who are in a favorable financial position.
It means that borrowers with smaller deposits, or those who have built up less equity, could pay £174 per month more than those with larger deposits or equity to borrow the same amount.
Many home movers want at least 25% equity before taking their next step on the property ladder, according to Moneyfactscompare.
Around two-thirds of homeowners (69%) reach this threshold before moving to a new property, while a further one in seven (16%) want to move with 15% equity.
Adam French, head of consumer finance at MoneyfactsCompare.nlsaid: “The widespread demand for LTV for first-time buyers reflects a housing market increasingly shaped by uneven starting points.
“While many first-time buyers put their money away with mortgages with 90-95% LTV due to deposit restrictions, a notable minority enter the market with significant deposits, often helped by family support or inheritance.
“The concern is that a two-tiered market will emerge where buyers with higher deposits have access to cheaper rates and lower monthly repayments, while others pay a hefty premium.
“For second-time buyers and customers remortgaging, the data shows that equity remains king, with most waiting to build at least 25% equity.
“Although sensible buyers should note that significantly cheaper average rates are around 15% equity.”