Despite last month’s Bank of England base rate rise, the average rates of both two and five-year fixed rate mortgages at 95 per cent loan-to-value (LTV) have reached their lowest level since Moneyfacts’ records began in 2007.
On Monday, 24 September, the average two-year fixed rate on a 95 per cent LTV product sat at 3.73 per cent - a drop of 0.22 percentage points compared with August’s figure and down from an average of 5.67 per cent in September 2013.
The average five-year fixed rate on a 95 per cent LTV has also seen a steady decrease in recent years, with a current rate of 4.08 per cent - compared with 5.38 per cent five years ago.
Charlotte Nelson, finance expert at Moneyfacts, said the drop was good news for first-time buyers who may have anticipated the base rate rise would lead to increases for higher LTV products.
She said: "With 95 per cent LTV borrowers often seen as the lifeblood of the market, providers are keen to be seen as the go-to lender for this vital group, not only for the positive message this brings, but also so they can better rejuvenate their mortgage book with new customers."
She said the number of lenders had also grown in this sector, jumping by 10 in two years to now stand at 58. "This is a result of many providers beginning to feel as though the lower LTV sectors are becoming increasingly saturated, and are therefore looking for alternative areas to branch into," Ms Nelson said.
She added with competition in the high LTV market increasing, first-time buyers were benefiting from a rise in the number of mortgages available. Currently there are 345 individual 95 per cent LTV deals in the market, 120 more than in September 2016.
Ms Nelson added: "This extra choice is borne from providers looking to offer these borrowers a wide variety of choice, by launching multiple options within the same range."
Rachel Lummis, mortgage adviser at Xpressmortgages, said getting a high loan to value mortgage such as 95 per cent over the past decade was not easy due to few lenders offering the product - but considerable changes have been witnessed in the space over recent years.
She said: "With so many lenders available now compared with recent years it is important that anyone looking to purchase seeks advice from a whole of market mortgage adviser. The main high street lenders have some decent rates but there are offerings from many smaller banks and building societies that have competitive rates too, so it is important to compare the many lenders and products available."
However, Ms Lummis said further improvements were needed to the range currently offered, suggesting lenders should offer a product transfer service to customers nearing the end of their deal. They should also offer 95 per cent LTV to remortgages in addition to purchases.
She added: "A word of caution, it is not all about the initial rate, more the overall product and lender - one thing to consider when choosing a lender is what you are going to do two years down the line when the fixed rate ends.
"If property prices stay the same or decrease and the customer does not have any funds to pay down the mortgage to the lower loan to value band, 90 per cent, they will have limited options - there are not as many options when remortgaging at 95 per cent as there are when purchasing.
"Unless customers can remortgage to another lender or do a product transfer, if this is something the lender offers, then they could end up on the lender's higher standard variable rate - so some forward planning is needed so that first time buyers not only get on the property ladder, but can stay there."
rachel.addison@ft.com
