Smaller homebuyers face heavier costs

The extra borrowing cost for buyers with deposits of 5 per cent went up in September, according to Genworth/Moneyfacts Mortgage LTV Tracker.

The research has shown there is a widening gap between 75 per cent and 95 per cent loan-to-value mortgages.

It has shown the average 95 per cent LTV two-year fixed rate rose more than twice as fast as on 75 per cent LTV in the six months to September.

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September’s price gap was 2.81 per cent, while the extra borrowing rate was 15.81 per cent.

Simon Crone, vice president of mortgage insurance, Europe, for Genworth, said: “Simply needing a high LTV mortgage is no real indication of someone’s credit quality.”

Mr Crone added: “These findings show homebuyers with a 5 per cent deposit are being made to pay a rising premium that rivals the costs of unsecured borrowing.

“The option for lenders to get capital relief through government or private insurance partnerships is supporting some of the more competitive rates on the market without sacrificing underwriting standards or compromising on financial stability,” said Mr Crone.

“High LTV borrowers will be left counting the cost of capital pressures on lenders until the use of insurance partnerships becomes more common across the market.”

Adviser view

Simon Webster, managing director of Kent-based Facts and Figures, said: “The reality is we want banks with strong balance sheets and low borrowing costs. Those aren’t necessarily compatible.

“Someone somewhere has to pay, and ultimately it is going to be those with less clout, and that’s the people with the smallest deposits.

“There is a certain social injustice in the fact that those with the least pay the most, but that seems to be the way we regulate the banks.”