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How first-time buyers can save thousands with a 90% mortgage

Which? research uncovers huge difference between average mortgage repayments

How first-time buyers can save thousands with a 90% mortgage

It’s well known that the bigger your deposit, the better the mortgage deal you’ll get. But new Which? research can reveal that striving to hand over a 10% deposit and secure a 90% mortgage deal can save first-time buyers as much as £2,500 on a two-year fixed-rate deal.

On 16 February 2017, we used Moneyfacts data to find the average rates for both 90% and 95% mortgages – and discovered huge differences between the deals on offer.

The average rate for a two-year fixed-rate mortgage with a 90% loan-to-value (LTV) – for people with a 10% deposit – was 2.64%. For the same deal with a 95% LTV (for those with a 5% deposit), the average rate surged to 3.96%.

The table below illustrates what this could mean for someone buying the average UK property (worth £219,544, according to the latest Office for National Statistics data).

In this scenario, Buyer A is £1,000 short of a 10% deposit, so can only secure a 95% LTV mortgage with a rate of 3.96%. Meanwhile, Buyer B has saved enough for a 10% deposit and can therefore secure a 90% LTV mortgage with a rate of 2.64%.

On these deals, the difference between the monthly mortgage repayments would be more than £140. Over the length of the two-year mortgage deal, Buyer B would have saved £2,449.48 on his mortgage repayments.


Deposit £20,954 (90.46%) £21,954 (90%)
Average rate 3.96% 2.64%
Average monthly payments £1,044.32 £900.60
Total cost over two years (including deposit) £46,018.20 £43.568.72
AMOUNT SAVED: £2,449.48

For five-year fixed-rate mortgages, saving that extra money for a 90% mortgage yields a huge saving.

According to Moneyfacts, the average rate for a five-year fixed-rate mortgage with a 90% LTV was 3.25%. For a 95% LTV deal, the average rate was 4.41%.

In this case, if Buyer A was £1,000 short of a 10% deposit and could only secure a 95% LTV mortgage with a rate of 4.41%, his monthly repayments would be £1,094.10.

Meanwhile, if Buyer B puts down a 10% deposit and secures a 90% LTV mortgage rate of 3.25%, he’d pay just £962.54 a month – a difference of around £132.

The difference over five years would come to a whopping £6,893.55.

Deposit £20,954 (90.46%) £21,954 (90%)
Average rate 4.41% 3.25%
Average monthly payments £1,094.10 £962.54
Total cost over five years (including deposit) £86,600.42 £79.706.87
AMOUNT SAVED: £6,893.55

This brings home the point that it could sometimes be better for your long-term finances to save for a larger mortgage deposit, rather than buying a property as soon as you can afford a 95% mortgage.

Average mortgage rates

As you’ll see below, the differences between the average mortgage rates on offer among different LTV bands are less drastic for those with bigger deposits.

In some cases, the average rate is actually higher for mortgages for with a lower loan-to-value. However, if you’re able to put more money down as a deposit, this will always prove more cost-efficient in the long-term, as you’ll owe less to your mortgage provider and therefore pay less interest.

Loan-to-value Average mortgage rate (two-year fixed-rate) Average mortgage rate (five-year fixed rate)
60% 1.86% 2.44%
65% 2.48% 3.01%
70% 2.63% 3.17%
75% 2.51% 3.16%
80% 2.41% 3.07%
85% 2.37% 3.09%
90% 2.64% 3.25%
95% 3.96% 4.41%

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