Homebuyers can turn an additional £15,000 into an impressive £50,000 in mortgage savings by strategically increasing their deposit, an expert has said.
A higher deposit reduces the loan-to-value (LTV) ratio, which often qualifies buyers for better mortgage interest rates.
For instance, boosting a deposit from five percent to 10 percent can lower the LTV ratio, leading to significant savings over the lifetime of the mortgage.
Danny Belton, head of lending at Mortgage Advice Bureau said: “For first-time buyers, the deposit is often the hardest thing to save for. However, making full use of Help to Buy or Lifetime ISAs are a great way to boost it.
“Mortgage lenders typically have increments of five percent in terms of the loan to value and associated interest rate. For a first-time buyer, often even just a few thousand more could push you into a lower LTV band and a cheaper deal.”
According to Mortgage Advice Bureau’s calculations, a 95 percent LTV loan of £285,000 on a £300,000 property would cost £1,563.21 per month with a high street lender.
By saving up to £15,000 to reduce the loan size to £270,000, or a 90 percent LTV, the monthly payment with the same lender would drop to £1,423.13. Over the entire 30-year mortgage, this results in a saving of £50,428.80.
In addition to these savings opportunities, recent changes in the broader financial landscape could boost these benefits even more. Following two years of rate hikes, the Bank of England has finally reduced interest rates by 0.25 percent, prompting a wave of mortgage re-pricing.
With many mortgages now available below the four percent mark, this shift offers good opportunity for both prospective buyers and existing homeowners to reassess their mortgage options.
Mr Belton said: “This has been a long time in the works, but finally the Bank of England has cut interest rates, sparking optimism in the market and hopes of a strong end for the summer and autumn ahead. Those who’ve gotten mortgage-ready over the past year will be in pole position to take advantage of the first rate cut.”
However, for those who haven’t, Mr Belton said: “This is what you should be considering now.”
Buying when ready
Mr Belton emphasised that purchasing a home involves more than just financial considerations; it’s also about finding a suitable place to live.
He said: “The first rate cut has meant mortgage rates have begun to come down, and there is indeed hope that they will come down further. Trying to time the market is impossible, and simply put, if you’re ready to get started on your mortgage journey, you should do so when it’s right for you.
“There might be future rate cuts, but mortgages are based on the future of interest rates, and lenders will have priced these in already.”
Potential costs of inaction
For homeowners approaching the end of their fixed-rate periods, Mr Belton said it’s “likely” they will still face an increase in borrowing costs.
He warned that failing to address this situation promptly could result in being moved to a Standard Variable Rate (SVR), which is generally higher than a new fixed-rate mortgage.
Based on current average SRV rates, Mr Belton said such inaction could lead to an additional £24,000 in costs over the same mortgage term.
He noted: “If you’re worried about being able to afford the repayments or are nervous over what the increase might be, speaking to a broker or your lender should be the first step.”
