Posted by John Yerou
on July 8th, 2015 09:57am in
Last Updated on March 3rd, 2019 09:04am.
Estimated Reading Time: 1 minute
One simple equation explains the difference in interest rates: bigger deposit = greater security. In other words, the more you put down, the less percentage of a home’s value a lender is putting at risk.
This is not a policy made up to punish contractors for the way they work. It’s the same for borrowers the length and breadth of the country.
This is a brief overview of how different deposits might impact the interest rate you pay.
If you’ve only got 5% deposit, Help-to-Buy is the way to go. 95% LTV mortgages were once the norm.
The reason they’ve made a comeback is because the government backs lenders who offer Help-to-Buy. One has to realise, 5% is not a big buffer.
When house prices began to drop, they could lose 5% between mortgage offer and completion. Lenders were exposed to negative equity before a borrower’s deposit had even cleared.
With Help-to-Buy, some lenders are offering 95% LTV mortgages again. Not all. The chances of you finding a lender who’s contractor friendly and who offer H2B are few and far between. Got 5% to put down? Talk to a specialist broker about your options.
For contractors and freelancers with 10-15% deposit, the picture gets rosier still. Interest rates begin to get less steep. Plus, you avail yourself of more lenders and mortgage products with this step up in deposit.
Self-cert may have gone, but the Smörgåsbord of mortgages available remains comprehensive. With 90% or 85% LTV mortgages, you can access fixed, SVR, discount and tracker rates.
For borrowers with 25% deposit and above, interest rates are no different to mainstream lending. This best-buy table highlights the scale of interest rates set against various LTV (deposit) amounts.
One last point of note about interest rates. If your credit rating isn’t the best, it will affect the rate lenders are prepared to offer.
Again, it boils down to risk. The worse your credit rating, the greater the risk on the lender’s part. Our FAQ #10 has more information about subprime lending.
Author: John Yerou
John Yerou is a pioneer of contractor mortgages and owner and founder of Freelancer Financials, Contractor Mortgages®, C&F Mortgages and Self Employed Mortgages, trading styles and brands of the award-winning Mortgage Quest Ltd.