Mortgage rates tumble 32%, but low deposits still punished

Mortgage rates have tumbled by 32 per cent in the last 12 months, with latest figures showing that the rate for a 60 per cent loan-to-value, two-year tracker has dropped from 2.49 per cent to 1.69 per cent, data from Mortgage Brain has revealed.

The analysis, a breakdown of all main product types in the UK mortgage market for a repayment mortgage, is calculated by the lowest rate for a property worth £180,000.

Latest figures, as of 1 January 2014, showed a 26 per cent rate drop was recorded for the lowest two-year fixed rate with a 60 per cent LTV, from 1.99 per cent to 1.48 per cent.

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Whilst not as big a drop as 60 per cent LTV deals, rates for 90 per cent LTVs are also down across the board compared to the start of January 2013.

The lowest rate five year tracker with a 90 per cent LTV is now 13 per cent lower, down from 4.09 per cent to 3.54 per cent, closely followed by the lowest rate two-year fix, down 11 per cent from 3.94 per cent to 3.49 per cent.

Despite the overall drop in interest rates, the rate difference between LTV bands continues to soar with the lowest rate 90 per cent two year fixed at 3.49 per cent now 136 per cent higher than the lowest rate product with a 60 per cent LTV (1.48 per cent).

The difference between the lowest rate 60 per cent and 90 per cent LTV tracker is 112 per cent, with the lowest rates currently standing at 1.69% (60 per cent LTV) and 3.59 per cent for a 90 per cent LTV product.

This relatively higher cost for mortgages taken out by buyers with low deposits is likely to provide a continuing barrier to entry for some first-time buyers in particular, many of which struggle to meet demands for higher upfront equity investments.

Mark Lofthouse, chief executive of Mortgage Brain, said the main driver of interest rate falls is the introduction of government initiatives such as help to buy and funding for lending, combined with the general improvement in the market and increased competition.

He said: “There’s no doubt that the drop in interest rates, when compared to this time last year, will be welcome news to today’s potential homebuyers or those currently looking to remortgage their property.

“The question looking further ahead, however, is what will happen to these rates in 2014 and beyond and will the withdrawal of the government’s funding for lending initiative have any impact.”