One of the biggest influences on your mortgage rate is driven by the amount of deposit you are contributing towards your new home. The larger your deposit, the more security that the mortgage lender has when they take on the risk of lending money to you. As a result of this, interest rates offered with a smaller deposit are higher than when a larger deposit is put down. Mortgage rates reduce with every additional 5%. These are examples of 2 year fixed rates available today:
5% deposit – 3.95%
10% deposit – 2.20%
15% deposit – 1.74%
As you can see, there is a sizeable reduction in the rate charged from 5% to 10% and then a further moderate reduction from 10% to 15%
Based on a £200,000 mortgage if you were able to put a 10% deposit down instead of 5% then this would mean a saving of £4,725 over the initial 2 year period, which is quite a sum of money, nearly £200 per month.
As well as the mortgage savings associated with having a larger deposit, the added security of having more funds in your house is also valuable and something to factor into considerations.
So does this mean it is worth delaying getting on the ladder to achieve the 10% deposit?
There are a number of factors to consider when answering this question
While demand for housing continues to outweigh supply, the house price factor alone suggests that getting on the ladder at the earliest opportunity is advantageous. However, like all considerations relating to buying your first home, every individual and their circumstances are different which is why getting advice from experts is important.
At BeAdvised, we are committed to helping first time buyers achieve their goals and welcome anyone who is saving to buy their first home in the near future to get in touch.
Your home may be repossessed if you do not keep up repayments on your mortgage
*Figures taken from Office of National Statistics based on the average price of properties sold in England between July 2016 and July 2017 – SOURCE
For illustrative purposes only, comparisons in this article have been based on the total costs incurred (including capital repayments, fees and interest) of a competitive 2 year fixed rate mortgage on a 30 year repayment term.