Mortgages  

Focus on larger deposits as cost of high LTVs rises

Focus on larger deposits as cost of high LTVs rises

Those with small deposits face monthly mortgage payments 36 per cent higher than those who can save more, according to the latest AmTrust Moneyfacts LTV Tracker.

Homeowners with a 5 per cent deposit pay an average of £762 in monthly repayments, £294 more than the £468 paid each month by those with 75 per cent loan-to-value mortgages.

Average interest rates continued to decrease throughout the second half of 2016 with both 75 per cent and 95 per cent LTV mortgages reaching new record lows of 1.42 per cent and 3.66 per cent respectively in November.

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Accounting for the higher costs those with small deposits face, this means there is a price differential of 2.24 per cent between the highest and lowest LTVs.

This gap has been widening steadily since the start of 2016, when it was 2.03 per cent.

Simon Crone, commercial director at AmTrust International, said: “It is increasingly clear that lenders are fighting harder to attract borrowers with larger deposits than those with small ones.

“The number of available products, a widening price gap and lower repayments all mean those who can save larger amounts for a deposit benefit greatly when it comes to getting and paying for a mortgage.

“This is particularly worrying following the vote to leave the EU, which is likely to see greater lender caution over the coming year, and the decision not to extend the Help to Buy mortgage guarantee scheme.

“It would be a huge shame if the positive steps taken by the industry and government to improve lending to first-time buyers, after the calamitous collapse of high LTV lending in the wake of the financial crisis, was undone over the months ahead.”

The number of 95 per cent LTV mortgages rose from 246 in December 2015 to 256 in December 2016 – an increase of just 4 per cent.

Meanwhile, the number of 75 per cent LTV loans rose from 695 to 763 in the year to December, a 10 per cent increase.

This is the largest increase for any LTV bracket and means those with larger deposits benefit from the greatest array of mortgage choice.

Mike Richards, director of London-based Mortgages Concepts Associates, said it was becoming very difficult for first-time buyers and people with small deposits while some lenders like Virgin Money and Barclays were offering "phenomenal" rates of 1.89 per cent and 1.83 per cent on low LTV mortgages.

He said: "Lenders are going to prefer the low LTV mortgages because there is less risk and there is more security. It is a shame because that's the market the government wants to attract into the housing market."