MortgagesMay 24 2016

High LTV mortgages close price gap

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High LTV mortgages close price gap

The difference in rates between the average two-year fixed mortgage at 60 per cent and 90 per cent loan-to-value has fallen by 0.93 per cent to 1.03 per cent in just two years, according to Moneyfacts.

Heightened competition has given those with smaller deposits a boost, as not only are there lower rates, but also more deals for borrowers to choose from.

Charlotte Nelson, spokeswoman for Moneyfacts, pointed out with the lowest two-year fixed rate at 90 per cent LTV now 1.99 per cent, those with a deposit of just 10 per cent can secure a rate that was previously reserved for those with a much greater equity in their home.

She said: “Although a rise in base rate seems to have faded into the background for the time being, it seems providers are still choosing to lower rates now in preparation, so that when base rate does rise and borrowers are incentivised to remortgage, they will see their current lender as a competitive option.” 

 

Five years ago

Two years ago

One year ago

6 Months Ago

Today

60% LTV - Average two-year fixed rate

3.92%

2.38%

1.86%

1.93%

1.98%

90% LTV - Average two-year fixed rate

5.97%

4.34%

3.66%

3.20%

3.01%

 

 

 

 

 

 

Difference

2.05%

1.96%

1.80%

1.27%

1.03%

Source: Moneyfacts.co.uk

Compiled: 23.5.16

 

Lenders have previously only lowered rates for ‘less risky’ borrowers, so the majority of cuts were aimed at the 60 and 65 per cent LTV tiers.

However, Moneyfacts’ analysis found as each sector of the market became saturated with competitive deals, providers started to make cuts in higher LTV bands.

At the same time, the launch of the Help to Buy scheme made it increasingly acceptable to lend at at higher LTV, said Ms Nelson.

“Those looking for a mortgage at 95 per cent LTV will therefore not be disappointed by the rates now offered, as the difference between two-year fixed mortgages at 60 and 95 per cent LTV has shrunk by a significant 0.71 per cent in just one year.

“Demand for high-LTVs is always robust, so the fact that there is not only more deals on the market but the overall cost is also cheaper is a welcome development,” she continued, adding that the MMR means the strength of this market is not an indication there has been a return to risky practices.

David Hollingworth, associate director at London & Country Mortgages, said there is no doubt the appetite for lending and heightened competition in the market has helped not only those with large amounts of equity, but also those struggling to pull together a substantial deposit.

“As margin has been squeezed at the low LTV end, lenders have increasingly looked to compete further up the LTV curve,” he stated.

“That is great news for borrowers as choice of lender and rates have improved, increasing the options for those that can demonstrate affordability.”

Brendan Gilligan, mortgage product manager at Yorkshire Building Society, agreed the downward trend of mortgage rates over the past five years has been great news for first-time buyers.

“A lower mortgage rate can make a huge difference to your monthly repayments, but borrowers should also bear in mind the true cost of the mortgage, as products fees, legal costs and valuations can add significantly to the total a borrower pays over the fixed term of the mortgage.”

peter.walker@ft.com