PEOPLE with small deposits are being charged twice as much for mortgages as those with more money to put down, research showed today.

The average best buy rate for someone with a 10% deposit is 5.34%, more than double the average of the top three rates of 2.5% for people with a 40% deposit or equity stake, according to website

The difference in the rates means that a borrower with a £200,000 mortgage and a 40% deposit will pay £318 a month, or £3,800 a year, less than someone borrowing the same amount with only 10% to put down.

The best rate available for someone borrowing up to 60% of their home’s value is currently a 1.99% discount deal being offered by HSBC, but the same mortgage for people with only 10% to put down is 3.89%, while the next best rate is 5.34% from Britannia.

The gap is equally great for people who opt for a fixed-rate deal, with an average best buy rate for people with a 40% deposit of 4.2%, compared with one of 7.04% for those borrowing 90% of their home’s value.

Competition is beginning to return to the mortgage market, with three big lenders cutting their rates yesterday, but much of the improvement is limited to people with larger deposits who represent a lower risk.

Francis Ghiloni, commercial director at, said: "It is encouraging that lenders are willing to lend to borrowers with small deposits but it is disheartening when you see the rates.

"The irony is that it is not necessarily the lenders who are at fault but regulatory changes which mean lenders have to price for risk and add a premium on. In reality, the lender has to hold more capital in reserve for a higher LTV (loan to value ratio) mortgage than for a lower one."

There are currently only 101 different mortgages available for people borrowing 90% of their home’s value, up from a low of 71 in May, but well down on the 450 deals on offer in October last year.

There has been an even greater fall in the number of mortgages on offer for people taking out a 95% loan, with just nine different deals available, compared with 1,079 in July 2007, before the credit crunch struck.

But the number of different products for people borrowing 60% of their home’s value has more than tripled during the past year to 311 from 96, according to financial information group

The greatest level of choice is for people with at least a 25% deposit, with 536 mortgages available in this loan to value range.