First-time Buyer  

High LTV mortgages cost two-thirds more than 75% LTV deals

High LTV mortgages cost two-thirds more than 75% LTV deals

Lenders have come under fire after figures showed first-time buyers (FTBs) with smaller deposits face paying two-thirds more on a mortgage than their better-off counterparts.

Insurer AmTrust said first-time buyers with the biggest loan-to-values (LTVs) have much less choice than those able to put down a 25 per cent deposit plus the average loan required by those putting their first step on the ladder has increased to £122,647 for those with 25 per cent deposit and £155,353 for those with a 5 per cent deposit since the second quarter of the year.

With average rates of 1.42 per cent for 75 per cent LTV loans and 4.02 per cent for 95 per cent LTV loans, high-LTV first-time buyers face paying 68.9 per cent more than those with bigger deposits - £9,852 compared to £5,832 over the course of a year.

AmTrust's data showed borrowers looking to buy at the average first-time buyer price with only a 5 per cent deposit have a choice of just one two-year product or six products across all terms and deals.

In contrast, hundreds of products are available for those with a 25 per cent deposit, AmTrust pointed out.

The insurer said that while average fixed rates for 75 per cent and 95 per cent LTV mortgages declined during the summer, a number of lenders have begun hiking rates in anticipation of a rise in the Bank of England’s base rate.

As house prices continue to increase, it warned first-timers will need to find both bigger deposits and take out bigger loans in order to get onto the property ladder.

AmTrust’s Mortgage LTV Tracker analyses monthly, quarterly and annual data from HM Treasury, the Bank of England and the UK Finance on product availability, mortgage rates and LTVs.

Pad Bamford, business development director at AmTrust Mortgage & Credit, said: "All in all, first-time borrowers with small deposits are nowhere near flavour of the month with lenders and therefore the trials and tribulations that come with attempting to get on the property ladder still persist for many. 

“We would like to see more lenders utilising private mortgage insurance in order to mitigate against any perceived risk and to bring their high LTV products' pricing far closer to that of their lower LTV offerings.”

But Jane King, mortgage adviser at London-based Ash-Ridge Asset Management, pointed out that those on higher LTVs are a greater risk for lenders.

She said: “Most 95 per cent LTV mortgages are two or five-year fixes, and there is massive disparity in the rates between even a 5 per cent and 10 per cent deposit.

“If you have only got a 5 per cent deposit, you have not got much to choose from, but it could be argued yes, you are paying a higher rate, but you are on the ladder.

“For 95 per cent LTV you are looking at around 2.7 per cent, whereas if you drop down to 10 per cent deposit you are looking at more like 1.7 per cent.”