A growing divide is emerging in the first-time buyer market as new analysis reveals that almost one in five prospective homeowners are seeking mortgages with a maximum 60% loan-to-value (LTV) ratio – suggesting a significant minority are entering the market with large deposits, often backed by family wealth or inheritance.

According to fresh data from Moneyfactscompare.co.uk, 17% of first-time buyers are targeting sub-60% LTV deals, placing them in a position to benefit from the most competitive mortgage rates.

By contrast, nearly one in three (31%) are looking for 90% LTV products, and a further 10% are seeking 95% loans, highlighting the reliance many younger buyers have on minimal deposits and higher borrowing costs.

At the UK’s average house price of £272,995, a 5% deposit equates to around £13,650, while a 10% deposit would be £27,300. Those able to put down 40% – equivalent to roughly £110,000 – are effectively insulated from some of the affordability pressures faced by their peers.

COST DISPARITY

The research also highlights the sharp cost disparity between borrowers at opposite ends of the equity spectrum.

A buyer with a 60% LTV mortgage, at an average two-year fixed rate of 4.48%, would pay around £1,387 a month on a £250,000 loan over 25 years. At 95% LTV, the typical rate rises to 5.41%, pushing monthly repayments to £1,522 – a difference of £134.

Adam French, head of news at Moneyfactscompare.co.uk, said: “First-time buyers are feeling the weight of affordability pressures, with many relying on more expensive high LTV loans due to the challenges of raising a sizeable deposit.

“Meanwhile, a significant proportion are seeking lower LTV deals, suggesting many are receiving substantial financial support from family or inheritance. This marks a growing divide in the housing market as those without such support face greater financial strain.”

AFFORDABILITY ISSUE

Mary-Lou Press, president of NAEA Propertymark said the figures “shine a light on the growing divide in the first-time buyer market.”

“While some are having to stretch their finances to secure 90% or 95% mortgages, it’s striking that almost one in five are entering with deposits of 40% or more,” she said.

“Without decisive action to improve affordability and supply, homeownership risks becoming even more out of reach for a growing proportion of the population.”