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29 May 2020

How much do first-time buyers need for a 10% house deposit?

Fewer mortgages mean first-time buyers need bigger deposits for the best rates

Banks have withdrawn the majority of their low-deposit mortgages in the wake of the COVID-19 outbreak, resulting in the gap in cost between 90% and 95% deals growing significantly.

This means that to secure a great interest rate, first-time buyers may now need to either stump up a 10% deposit or bide their time until more deals return to the market.

Here, Which? explains how much you'll need to save to buy a home with a 90% mortgage in your area and how a bigger deposit can affect the size of your mortgage repayments.

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What's happened to 90% and 95% mortgages?

Banks and building societies have withdrawn more than half of their mortgages since the start of March, as they grapple with the effects of the coronavirus outbreak.

These cuts have been sparked by a series of challenges, including the government's stay-at-home measures banning in-person mortgage valuations, bank resources being stretched due to mortgage payment holiday applications and two emergency cuts to the Bank of England base rate creating uncertainty.

Low-deposit deals have been worst affected, with nine in 10 90% and 95% mortgages withdrawn in the space of just two months.

When will small deposit mortgages return?

The property market has now reopened in England and mortgage valuations are recommencing, but it's early days in terms of mortgage numbers rising again.

The number of 90% deals on the market has increased by 11 in the last 10 days, but 95% deals are yet to see any change.

Loan to value (LTV)1 March17 May27 May

Where do first-time buyers need the biggest deposits?

As people begin buying and selling homes again, it's likely that more products will return over the coming weeks and months. The number of 90% mortgages is likely to rise first, simply because 95% loans are riskier for lenders.

If you're currently saving for a mortgage deposit, the amount you'll need to put down to get a 90% mortgage varies significantly depending on where you're looking to buy a home.

New data from Rightmove shows that savers in the North East only require £10,034 for a 10% deposit, while buyers in London need an eye-watering £47,757. The overall average for England is £24,189.

The interactive map below shows how much you need in each region for a 10% deposit, as well as the current average asking price in each area.

How much will it cost to buy a home in my city?

Rightmove also assessed deposits and property prices in 20 cities around England.

It found that in two cities, Bradford and Hull, first-time buyers could take out a 90% mortgage with a deposit of less than £10,000.

Outside of London, first-time buyers in Brighton need the biggest deposits, with £30,960 required to secure a 90% mortgage.

How much will I save with a 10% deposit?

Generally speaking, bigger deposits mean lower mortgage interest rates and, thus, lower monthly repayments.

The gap in cost between the best-rate 90% and 95% mortgage is usually in the region of 0.7%-1%.

On the day the base rate dropped for the first time (11 March), the gap was 0.97%, but this has now widened to 1.3%, meaning 90% mortgages are considerably cheaper than 95% deals.

How do repayments compare?

At 90% LTV, HSBC offers a two-year fix with an initial rate of 1.79% and a fee of £999.

The cheapest comparative 95% mortgage is from Nationwide, at 3.09% and with a fee of £999.

The chart below shows how your monthly repayments during the two-year introductory period could differ depending on whether you have a 5% or 10% deposit.

Based on buying a £200,000 property with a 25-year mortgage term, the cheapest 90% mortgage would cost you £165.25 a month less than the best-rate 95% loan.

Do bigger deposits always mean cheaper rates?

Going down a LTV bracket makes a difference to your repayments, but once you go below 90% the savings are smaller.

There are currently 158 deals available for first-time buyers at 85% LTV, meaning those with slightly bigger deposits have much more to choose from.

The cheapest two-year fixed-rate mortgage at 85% LTV is priced at 1.49% from HSBC - that's just 0.3% lower than the best 90% rate.

This means the monthly saving in this instance would be £65.58 a month, as shown below.

Should I buy my first home this year?

It's a confusing time to buy your first home and although the property market in England has now reopened, it remains to be seen what impact COVID-19 will have on house prices.

This means it's even more important than before to do your research and ensure you're not rushing in or overpaying for your first property.

It's also worth taking advice from a mortgage broker on your borrowing options, as the situation is changing on a weekly basis.

The market likely to be volatile for a while, so you might not see returns in terms of house price growth for some time if you purchase now. With this in mind, think about your long-term plans before you start your search.

Find out more: how will COVID-19 affect house prices?

How to save for a mortgage deposit

Whether you're close to buying your first home or you've just started saving, we've got lots of great advice to help you boost your deposit.

If you're in the earlier stages of saving, check out our guide on the basics of saving for a mortgage deposit, and consider the pros and cons of opening a Lifetime Isa, which offers a 25% bonus on your savings.

If you're a little further down the line, we can help you find out how to improve your mortgage chances and ultimately apply for a mortgage.

Which? coronavirus advice

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