Why it’s getting easier to get a great mortgage rate

It’s no secret that if you have a sizeable deposit to put down on a house or flat, you’re not only more likely to be accepted for your mortgage, you’ll have access to better interest rates too.

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But if your deposit size is much smaller, don’t despair: the good news is, things are looking up

Greater competition

This is because more lenders are launching mortgage deals for those who can only afford to put down a deposit of 5% - often known as the ‘95% mortgage’.

This type of mortgage pretty much disappeared after the credit crunch, but grew in number again after the launch of the government’s Help to Buy Mortgage Guarantee scheme in 2013.

In fact, according to our number crunchers, in 2009, there were just six 95% mortgages on the market. Today there are 34.

But with the Mortgage Guarantee scheme due to end in December 2016, a number of lenders, including TSB and Tesco Bank, have launched a range of 95% mortgages without government support – and now Nationwide and Santander have joined them.

Nationwide’s 95% mortgages

Nationwide’s new fixed-rate 95% mortgages are available to both first-time buyers and home movers.

Its two-year fixed rate deal* is priced at 3.99% and has a fee of £999, while its three-year fix** is priced at 4.59%, again with a £999 fee.

Nationwide also offers a five-year fixed rate mortgage*** at 4.79% with a fee of £999.

David Hollingworth of London and Country, MoneySuperMarket’s mortgage advice partner, said: “Nationwide's launch is good news as it brings another major lender into the 95% market, having not participated in the Help to Buy guarantee scheme.

More competition improves the options and rates on offer, although borrowers will still pay more than if they can stretch to a bigger deposit.”

Meanwhile, Santander, which did participate in the Mortgage Guarantee scheme and therefore already offered 95% mortgages, has promised to launch a new range of 95% mortgages on September 29, which won’t be part of the scheme.

The best fixed rates for different deposit sizes

Of course, if you can afford to stump up a larger deposit, you’ll still have access to better mortgage rates.

So here’s a quick run through of some of the great two-year and five-year fixed rate mortgages depending on your deposit size.

Two-year fixed rate mortgages

 Deposit size  Lender  Initial rate  Standard variable rate after two years (currently)  Fees Overall cost for comparison
 10%  Clydesdale Bank  2.39% until 30/11/17 (min loan amount of £1,000)  4.95%  £999  4.6% APR
 25%  Chelsea Building Society  1.29% until 30/10/17  5.45%  £1,545 product fee, plus £130 admin fee  4.9% APR
 40%  Yorkshire Building Society  1.16% until 30/10/17 (only requires a 35% deposit)  4.99%  £1,369 product fee, plus £130 admin fee  4.5% APR

Early repayment charges apply during the fixed rate period. Other fees may apply, see T&Cs.

Five-year fixed rate mortgages

Deposit size Lender Initial rate Standard variable rate after two years (currently) Fees Overall cost for comparison
10% Clydesdale Bank 3.39% until 30/11/20 (min loan amount of £1,000) 4.95% £999 4.5% APR
25% Chelsea Building Society 2.49% until 31/10/20 5.45% £1,545 product fee, plus £130 admin fee 4.6% APR
40% Metro Bank (through our broker London & Country) 2.29% 4.0% £999 3.4% APR

Early repayment charges apply during the fixed rate period. Other fees may apply, see T&Cs.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

Remember that when you’re comparing mortgages, you should always work out the total cost of the deal, including any fees you have to pay. The lowest mortgage rates don’t necessarily work out cheapest overall.

Top tracker rates

If you’d prefer a variable tracker mortgage and have a 35% deposit,  Chelsea Building Society offers a two-year tracker (variable), priced at 0.98% (BoE Base Rate + 0.48%) until 31/10/17, reverting to standard variable rate currently 5.45% after two years (overall cost for comparison is 4.8% APR). It has fees of £1,675.

Alternatively, if you have a deposit of 10%, Yorkshire Building Society offers a two-year tracker (variable) at 2.28% (BoE Base Rate + 1.34%) until 31/10/17), reverting to standard variable rate currently 4.99% after two years (overall cost for comparison is 4.7% APR). It has fees of £975.

If you are considering a variable rate mortgage, be sure you can afford higher repayments if interest rates rise over the next few months.

And if you're at all unsure which mortgage deal is best for you, you can contact our mortgage partner, London and Country, for free, independent advice on 0800 170 1943 from a landline or a mobile for free, seven days a week. There's no strings attached if you decide not to proceed.

 

*Nationwide two-year fix – Reverting to standard mortgage rate currently 3.99% after two years. Overall cost for comparison is 4.3% APR. Early repayment charges apply during the fixed rate period. Other fees may apply, see T&Cs.

** Nationwide three-year fix - Reverting to standard mortgage rate currently 3.99% after three years. Overall cost for comparison is 4.5% APR. Early repayment charges apply during the fixed rate period. Other fees may apply, see T&Cs.

*** Nationwide five-year fix - Reverting to standard mortgage rate currently 3.99% after five years. Overall cost for comparison is 4.7% APR. Early repayment charges apply during the fixed rate period. Other fees may apply, see T&Cs.

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Please note: any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.

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