Following a year of high interest rates and low loan to value ratios from banks and building societies on their ranges of home owner loan and mortgage products, many people have been relieved to see new loan products enter the market, which advertise lower interest rates and higher loan to value ratios from lenders.

Although this seems like good news on the face of it, according to new research from Moneyfacts, it appears that it is possible for a potential borrower to get a loan with either a cheap rate, or a high loan to value, but not both.

Although generally the average rate on a loan has reduced steadily over the course of the past few months, this is largely due to cheap loan rates being offered on home owner loan products which require a large deposit form the borrower.

It is true that there are a growing number of high loan to value products entering the market, but as average loan rates are decreasing, it seems that the average rate on a high loan to value product is actually increasing.

The average interest rate on a loan offering 90 per cent loan to value now stands at 6.48 per cent, compared with the average rate for a 75 per cent loan to value product of just 4.27 per cent. This means that someone with a 90 per cent loan is likely to pay somewhere in the region of £4,728 more than someone with just 75 per cent loan to value over a two year period, for the same amount of loan.

Michelle Slade at Moneyfacts said “While lenders are slowly increasing the number of deals available to those with a small deposit, which should be good news for first time buyers, they continue to make them pay a heavy price.”

“First time buyers are being offered little incentive to enter the market and there are no real signs of things getting better anytime soon for those with a small deposit.”