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August 3, 2010    

Mortgage lenders hold out on large deposits

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by Gill Montia

Despite a rise in the number of mortgage deals on offer, a large deposit remains essential in securing a competitive loan, both for house purchasers and remortgagers.

According to research by Moneyfacts Group for the BBC, the number of mortgage products available has risen 66% so far this year, to 2,351.

However, the financial researcher found that 58% of deals demand a deposit of at least 25%, while only 8% of loans currently on the market invite applications from those with 10% to put down.

More positively, average interest rates have fallen slightly, with the typical two-year fixed rate now at 4.5%, compared to 4.9% in January, according to Moneyfacts’ data.

A three-year fix comes with an average rate of 5.2%, compared with 5.5% at the start of the year, and five-year deals cost 5.6% against 6.1%.

At the same time, rates vary widely depending upon the deposit size: a two-year fix at 90% loan-to-value (LTV) comes with an average rate of 6.2% but at 75% LTV the rate drops to 4.1%.

The UK mortgage market will no doubt be required make further adjustments if proposed new measures from the Financial Services Authority come into effect later this year.

The regulator wants to make lenders ultimately responsible for assessing a consumer’s ability to pay and will require verification of a borrower’s income in every case, to prevent over inflation of income and mortgage fraud.

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