How deposit levels affect mortgage rates
Over the past year, 100% mortgages have made a strong comeback. Opinions differ on whether this is good or bad, but I wanted to explore the difference in monthly payments for a first-time buyer with and without a deposit.
This analysis assumes a £450,000 property, a 35-year mortgage term, and focuses on longer-term fixed rates, as 100% mortgages are typically offered on these terms
This highlights the significant advantage of even a modest 5 - 10% deposit often made possible by support from the Bank of Mum and Dad.
This raises an important question for first-time buyers: Is it worth waiting 1 - 3 years to save a larger deposit and secure a lower loan-to-value? The risk is that house prices may rise during that time, potentially increasing overall borrowing costs in the long run. Rates and product offerings available could well also change in this time.
100% of purchase price finance
Even with 100% finance it doesn't mean a property can be bought with no money, there will be lender fees, potentially valuation fees, stamp duty, broker fees, legal fees, surveyor costs, so at this level of purchase price over £10k would still be required, with the largest cost being stamp duty.
No rental history required
Rates - around 6.3%
Monthly cost - around £2,658
With a track record of rental history at over £2,000 a month
Rates - around 5.4%
Monthly cost - around £2,388
£5k deposit
No rental history required
Rates - around 5.46%
Monthly cost - around £2,379
With a track record of rental history at over £1,975 a month
Rates - around 5.4%
Monthly cost - around £2,361
5% deposit (£22,500 in this case)
No rental history required
Rates - around 4.85%
Monthly cost - around £2,117
10% deposit (£45,000 in this case)
No rental history required
Rates - around 4.4%
Monthly cost - around £1,892
15% deposit (£67,500 in this case)
No rental history required
Rates - around 4.4%
Monthly cost - around £1,787
The difference between a 5% deposit and no deposit (with no rental history) is £541 per month. Over a 5-year fixed term, that’s £32,460 more for the buyer without a deposit—simply because they couldn’t put an extra £22,500 down. That’s a huge gap for two neighbours living in identical properties.
