Mortgage deposits grow 300% in 2 years

11 August 2009 / by Rachael Stiles

Mortgage borrowers now have to find three times as much for a deposit than they did two years ago, pre-credit crunch, according to research from Moneyfacts.co.uk.

A fall in the average loan to value (LTV) from 91 per cent in August 2007 to 74 per cent today has pushed up the average deposit required for a £150,000 mortgage to £39,000, up from £13,500, the financial information website has found.

Borrowers with just a 10 per cent deposit have got 83 per cent less choice when looking for a fixed rate mortgage, which is in stark contrast to those with a 40 per cent deposit, who now have 2244 per cent more choice than before.

Michelle Slade, spokesperson at Moneyfacts, said that the rise in the average deposit required will be most keenly felt by first time buyer mortgage customers, and that if they cannot get a loan from the 'bank of mum and dad' then their aspirations to become property owners will have to be put on hold.

The number of fixed rate mortgages available is slowly rising, but variable rate mortgage deals remain scarce, as mortgage lenders fear a rise in the base rate could push many borrowers into defaulting on their payments, Ms Slade explained.

Moneyfacts has calculated that if the base rate returned to four per cent, variable rate mortgage customers could have to find an additional £300 a month, which "may be a step too far for many borrowers."

Therefore, Ms Slade urged, "although fixed rates are more expensive at present, they are likely to be a better option for those on a budget."

"If the Bank of England raises base rate sharply, those fixing now are likely to be better off in the long run than those locked into variable rate deals," she added.

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