Borrowers with lower deposits are paying as much as +£2,230 a year more for the same loan as those who can put down deposits of 40% for a mortgage, according to mform.co.uk.

Its research showed two-year tracker rates for borrowers with a 40% deposit can be as low as 3.99%, while for two-year fixed-rates can be 4.49% for a £150,000 loan. However if the borrower only has a 20% deposit, rates rise to 5.99% for trackers and to 6.45% for fixed-rates. If the borrower only has a 10% deposit then there are no trackers and the lowest rate for a fixed deal is 6.45%.

That translates into huge differences on the true cost of the deal including all fees. The average true cost of a two-year fixed deal at 60% LTV is £21,265 compared with £25,729 for a 90% deal - a difference of £2,232pa. For a two-year tracker the difference in true cost is £1,919pa - the average cost at 60% LTV is £20,907 compared with £24,746 at 80% LTV.

The huge range in rates and the massive differences in true cost shows the mortgage market is still a long way from returning to normal, mform.co.uk believes.

Francis Ghiloni, marketing and business development director at mform.co.uk, said: “The mortgage market is entirely back to normal as long as you have a deposit of 40% which is okay for some re-mortgagers - but of course that is a long way from normal and doesn’t help the housing market as by definition to move up to larger properties families need to stretch their borrowing.

“It is encouraging that there are good deals out there but disappointing that the choice is reduced for those with smaller deposits who will typically be first-time buyers or those who have bought in recent years and have not seen a significant rise in their homes value.
The differences in true cost for the same loan are simply staggering – an extra £2,200 a year is a substantial slice out of anyone’s budget and that price differential will continue to act as a drag on the market.”