Whether you're trying to get on or move up the housing ladder, saving enough for a suitable deposit is key. Indeed, moving down the loan-to-value (LTV) scale is often touted as the best way to secure a lower mortgage rate, yet our research shows that, while that may be true further up the scale, things may not be as simple as they appear.
Stumping up the cash
We've taken a closer look at the tricky world of LTVs and discovered that, while those who require a higher LTV mortgage will certainly benefit from saving that little bit extra, this isn't always the case for those who have a larger deposit to work with – essentially, a larger deposit doesn't necessarily equate to a better deal.
Let's take a look at the figures – all of which are based on a £150,000 mortgage over 25 years on a repayment basis – and you'll see what we mean.
Our data shows that the average rate for a two-year 95% LTV mortgage currently stands at 4.06%, which means a borrower who's able to stump up a 5% deposit (using the assumptions above) will be faced with a monthly repayment of £796.73. However, if they could save that little bit more and were able to put down a 10% deposit, they could secure an average rate of 2.74% and have monthly repayments of £691.20 – a monthly saving of £105.53.
"With savings rates still at record lows, many borrowers are thinking of alternative ways to utilise this cash," said Charlotte Nelson, finance expert at Moneyfacts. "Boosting a borrower's available deposit can prove lucrative, especially if they had a smaller deposit to start with. For example, a borrower able to provide a 10% deposit instead of just 5% will find themselves £105.53 a month better off based on the difference between the average two-year fixed rates.
"It is important to note that lenders' LTV brackets are fixed so that if a borrower is just short of the bracket they will not be permitted to move to the next one. Finding that extra bit of cash will therefore be the best way in which a borrower can influence their rate."
Exception to the rule?
So far, so good, but what about those who have an even bigger deposit to put down? Here's where it gets slightly murkier, as the tables below show:
| Average Two-Year Rate | Monthly Repayment | |
| 95% LTV | 4.06% | £796.73 |
| 90% LTV | 2.74% | £691.20 |
| Difference | £105.53 | |
| Average Two-Year Rate | Monthly Repayment | |
| 75% LTV | 2.01% | £636.51 |
| 70% LTV | 2.21% | £651.23 |
| Difference | - £14.72 | |
| Average Two-Year Rate | Monthly Repayment | |
| 65% LTV | 1.69% | £613.39 |
| 60% LTV | 1.86% | £625.61 |
| Difference | - £12.22 | |
| Source: Moneyfactscompare.co.uk | Compiled 13/03/2017 | |
As you can see, someone with a 75% LTV mortgage will be able to secure a lower rate – and therefore lower repayments – than if they had an extra 5% to put down, and the same applies when it comes to the 65%/60% LTV split. It seems counterintuitive, but that's what the rates are telling us!
Charlotte explains: "As competition has ramped up in the mortgage market, rates at the lower LTVs are starting to have more parity, with little difference between the brackets. So, while it is generally thought that extra cash will give you access to lower rates, this may not always be the case. Indeed, those dropping from the average two-year fixed rate at 75% to that at 70% LTV would be disappointed to find that despite the extra savings they would be paying an extra £14.72 a month, or £176.64 a year."
This unfortunately means that it's now more complicated to find the right deal, but it also highlights why it's so important to consider the full cost of the mortgage. This means that you shouldn't just look at the lowest rates, but instead consider the overall cost of the mortgage – including all fees and incentive packages – to make sure you come out on top, and you may want to seek advice from a financial professional if you're unsure.
Ultimately, however, you don't have to be too disheartened. Putting down a bigger deposit may not always get you a cheaper rate, but remember that anything extra you pay will reduce your overall mortgage term, so even if you're paying more on a monthly basis, you'll be mortgage-free quicker than you would have been otherwise – and that's a definite bonus.
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