Specialist lender Hodge Bank has warned that mortgage deposit size is now playing a bigger role in long-term financial wellbeing, as homeowners and buyers in the UK face rising costs and tighter affordability.
Emma Graham (pictured), business development director at Hodge, said: “Many people focus on the monthly repayment when choosing a mortgage, but your deposit size can dramatically affect the rate you’re offered, and the total amount you repay over time.
“A recent announcement from the Prudential Regulation Authority shows that positive steps are being taken to address the issues around affordability and help first time buyers
“However, with rates still considerably higher than they were three years ago, the impact of a small deposit is more pronounced than ever.”
Graham said affordability had worsened for first-time buyers (FTBs), making deposit size even more important for those trying to get onto the property ladder.
The average deposit for a FTB now exceeds £60,000, according to UK Finance.
Many are still entering the market with deposits as low as 5%, which Graham said can result in significantly higher interest rates.
Graham added: “Choosing a mortgage today isn’t just about finding the lowest rate, it’s about finding a product that supports your specific circumstances, especially in an economic environment where everything from energy bills to grocery costs has gone up.
“If you have a smaller deposit, it’s even more important to get the structure of your mortgage right from the outset.”
Graham noted that hundreds of thousands of borrowers are expected to exit fixed-rate deals secured during the ultra-low-rate period of 2020 to 2022.
As these borrowers face much higher interest rates, many could see repayments jump by £300 to £500 a month.
She said: “Whether you’ve gained equity, increased your income or had a change in life circumstances, there may be more options than you think, but the key is acting early and being open to exploring the right type of mortgage for your situation, not just defaulting to what’s most familiar.
“In a climate of economic change, having the right mortgage can make a significant difference to your financial security.
“Whether you’re just starting out or remortgaging after years in your home, your deposit size and your mortgage structure deserve close attention.”
