Inbetweener mortgages: for buyers with medium-sized deposits
What mortgage rates are available to buyers with deposits that are neither small nor chunky?
Mortgage best buy tables are filled with low rates for buyers with huge deposits, while headlines shout out about deals for those with small ones – but what about the buyers in between?
You might be a first time buyer that can stretch to a 20% deposit. Or you might be a homeowner who has paid the mortgage for a few years and now has equity worth more than the 10% deposit you paid when you moved in.
To use the jargon, this means you have a lower loan-to-value (LTV). In other words, if you have a 20% deposit, your LTV is 80%.
So exactly what deals are available at that level?
The deals in between
At one end of the scale you have homeowners with LTVs between 60% and 75% - the lucky ones - where deals start as low as 2.59% with Leeds Building Society. On the top end, for those of you trying to get a foot in the door of your first home, help is being made available through NewBuy, with mortgages at 90-95% LTV.
But lower cost deals aren’t out of the question for people at 80% LTV, so you’re not limited to the more expensive deals aimed at people who can only pledge a small sum.
Barclays this week lowered the rates on a range of mortgages, including one deal at 80% LTV. It’s a two-year fixed rate, cut from 3.79% to 3.69% and comes with a £999 fee. For a property worth an average £160,000, this would mean monthly payments of around £653 per month and a saving of £168 over the two-year term thanks to the rate cut.
Strapped for cash?
You might have more equity in your home but it doesn’t mean you’re cash rich all of a sudden, in which case you will need to look at fee-assisted or fee-free deals. If you spot a low rate check the fee straightaway – if it looks too good to be true there’s probably a big fat fee hanging on the back of it. You can read more about this in Mortgage fees rise by 70%.
Barclays offers a fee-free version of the mortgage outlined above but at 3.99%, which would translate into monthly payments of around £674 and actually works out nearly £500 cheaper than the other deal over the course of two years.
However, it’s from their Great Escape mortgage range, so it’s only for customers who are remortgaging, i.e. switching their mortgage to a different lender. Legal and valuation fees are thrown in for good measure too.
If you want to secure a rate for longer than two or three years, Nationwide will let you fix for five years at 4.69% with just a £99 fee, or at 4.49% for a £549 fee. If you’re an existing customer the fee is reduced to zero or £499 respectively.
If you’re comfortable with the possibility of your monthly mortgage payments rising suddenly, you can find even more competitive deals with a variable rate mortgage. For example, with Leeds BS you can pay a discounted variable rate at 3.30% for two years along with a £199 fee. It’s a discount of 2.39% on the building society’s standard variable rate (SVR).
You might prefer to link your mortgage to the Bank of England base rate instead, which is predicted to stay low for a few years. In which case, HSBC offers a deal at 3.09% above the base rate – currently 3.59% - for the entire term of the mortgage, unless you switch deals in future. An added bonus is that there’s no fee to pay.
Still a bit stretched?
If you can’t stretch to an 80% LTV mortgage, it’s possible to go one step higher to 85% LTV. You can pay a rate of 4.19% for two years with HSBC, with no fee on top. This is top of the tables for a mortgage requiring only a 15% deposit and a lot depends on your personal circumstances and credit rating as to whether you get accepted for a mortgage or not. This is explained further in Why you should beware the best buy mortgage tables.
It might be worth finding a deal that is less competitive but still decent and one that you’re likely to be eligible for. Nationwide offers a rate of 4.99%, fixed for two years, with a £99 fee.
Alternatively Lloyds TSB is offering first-time buyers a £500 cashback incentive with no fee on deals from 85-90% LTV. However, the rate is higher at 5.99% - and that’s just for existing current account customers. Otherwise the rate rises to 6.09%.
More on home loans:
At lovemoney.com, you can research all the best deals yourself using our online mortgage service, or speak directly to a whole-of-market, fee-free lovemoney.com broker. Call 0800 804 8045 or email firstname.lastname@example.org for more help.
This article aims to give information, not advice. Always do your own research and/or seek out advice from an FSA-regulated broker (such as one of our brokers here at lovemoney.com), before acting on anything contained in this article.
Finally, we tend to only give the initial rate of a deal in our articles, but any deal which lasts for a shorter period than your mortgage term may revert to the lender's standard variable rate or a tracker rate when the deal ends. Before you take out a deal, you should always try to find out from your lender what its standard variable rate is and how it will be determined in the future. Make sure you take all this information into account when comparing different deals.
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