Fixed rates fall but you need a big deposit to access them

Borrowers who are in the market for a fixed-rate mortgage will be encouraged to hear that the average rate has fallen significantly over the past four months. According to Moneyfacts, the average fixed rate fell by more than 50 basis points, following two Bank of England base rate cuts, from 2.89 per cent in March to 2.3 per cent in June.

While falling mortgage rates are great news for borrowers, an average rate conceals significant differences between what’s available for those with sizeable deposits or similar levels of equity in their home, and those with more modest down payments. Indeed, Santander announced this week that it is increasing the pricing on its 85 per cent loan-to-value (LTV) mortgages while at the same time reducing rates on 60 and 75 per cent LTV deals.

It is getting harder for borrowers who have a relatively small deposit to obtain a mortgage. Nationwide has reduced its maximum LTV from 95 to 85 per cent, citing worries about the potential of negative equity, where your property is worth less than your mortgage. Other lenders have pulled out of 90 per cent LTV because they couldn’t cope with demand.

Borrowers who need a high LTV will find that rates are higher than they have been in a while, and there is less choice available. Market-leading two and five-year fixes start from sub-1.5 per cent for those with a 25 per cent deposit or similar level of equity in their home. But if you only have ten per cent to put down, the best buy rate rises to 2.19 per cent for a two-year fix, plus it will be harder to get as affordability criteria are tighter.

If the Bank of Mum and Dad can help with your deposit or will purchase a property with you via a ‘joint borrower sole proprietor’ mortgage, you should find more products available to you at better rates. It can be confusing but AWS Financial Services can offer advice. As whole-of-market brokers, we can source the right deal for your circumstances: please get in touch for more information.

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