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Open the Door to Better Mortgage Deals With a 10% Downpayment - Cary Theall

Open the Door to Better Mortgage Deals With a 10% Downpayment

First-time buyer Derek McGair saved hard to put down a bigger deposit – and get a better mortgage rate – when he bought his home. Ten is the perfect number if you are moving on to – or up – the housing ladder this spring. This is because your monthly payments will be far lower if you can find a 10 rather than a 5 per cent deposit.

 

‘There has been a lot of talk about how many 95 per cent mortgages there are for buyers or movers with low deposits,’ says Anthony Ray, of Ipswich-based mortgage broker AR Financial. ‘But the rates on them can be high. You’ll normally be better off doing everything you can to raise the extra and putting down at least a 10 per cent deposit.’

 

With NatWest, for example, you can get a fee-free two-year fixed rate loan set at 4.49 per cent if you have a 5 per cent deposit. Getting a good deal: Research by financial product scrutineer Moneyfacts shows that such a rate gap between the 5 per cent and 10 per cent ‘depositors’ exists across the whole market

 

So a borrower looking for a £110,000 repayment mortgage would pay £610 a month. Put down 10 per cent and the bank’s fixed rate falls to 3.74per cent – cutting monthly payments by £46 to £564.

 

Research by financial product scrutineer Moneyfacts shows that such a rate gap between the 5 per cent and 10 per cent ‘depositors’ exists across the whole market. Its figures indicate that a low deposit buyer will pay an average of 4.93 per cent for a two-year fixed rate loan and 5.09 per cent for a five-year fix. Double your deposit to 10 per cent and the average two-year fixed rate is 3.86 per cent and the average five- year fix is 4.47 per cent.

 

You also get greater mortgage choice if you put more money down. While the number of mortgages available to all buyers is rising, Moneyfacts says there are almost three times as many deals on offer for buyers with the bigger 10 per cent deposit.

 

Better still, the larger amount of money you put down, the more flexible your lender will be when it assesses your application. Since the still controversial Mortgage Market Review came into effect last year every borrower faces tough new affordability questions. But the lower your deposit the more onerous the affordability tests will be. Put down 10 per cent and your chances of getting a green light are improved.

 

Here are the latest best-buy lenders to consider: The low rate options – which often carry high fees – tend to be the right choice if you are borrowing more than £100,000. If you’re borrowing less, then a low or no-fee alternative can be a better bet, even if the interest rate is slightly higher.

 

The lowest rates

 

Two-year fixed rate loans with a 10 per cent deposit start as low as 2.69 per cent with The Co-operative Bank and 2.99 per cent with Tesco Bank – though there are high fees of £1,499 and £995 respectively.

 

HSBC has a far lower rate, just 1.99 per cent, though it is not fixed so your monthly payments will rise if interest rates go up before the two years are up. With all two-year deals borrowers will have to remortgage – and probably pay another set of fees – in the middle of 2017 when interest rates generally could be higher than they are now. This explains why short-term loans are not recommended by most brokers.

 

Five-year fixes for borrowers putting down a 10 per cent deposit start at 3.79 per cent and 3.99 per cent from Norwich & Peterborough and West Bromwich building societies respectively.

 

You can pay slightly less each month by splitting the difference and choosing a three-year fixed rate deal. Of the major lenders Clydesdale, The Co-operative, Tesco Bank and the Post Office are offering the lowest rates lasting until the middle of 2018.

 

The lowest fees

 

First Direct, NatWest and Coventry Building Society are worth considering for fee-free two-year fixes with rates from 3.69 per cent, 3.74 per cent and 3.79 per cent respectively. First Direct and Coventry also offer fee-free five-year deals set from 4.05 per cent and 4.39 per cent respectively.

 

Other lenders to consider for low or no-fee, five-year fixes include Tesco, Nottingham and Virgin Money. Nationwide Building Society and Santander are worth a look for no-fee three-year deals.

 

Finally, if you want to lock into today’s low rates for as long as possible you can get a ten-year fix from Nationwide set at just 4.89 per cent – again with no application fee.

 

 

Source: www.thisismoney.co.uk

This article was first published on http://demo850.jibesuite.com.

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