High LTV borrowing costs rise 'substantially'

High LTV borrowing costs rise 'substantially'
Credit: Joe Giddens/PA Wire

The cost of borrowing for high LTV borrowers has risen “substantially” across all mortgage types over the past 12 months, according to Mortgage Brain.

Analysis by the technology provider found the cost of a two-year fixed-rate mortgage at 90 per cent LTV, for example, increased by more than 28 per cent between November 2019 and November 2020.

According to Mortgage Brain, the cost per £1,000 borrowed increased from £4.06 to £5.22, equating to an annual increase of £2,784 for a loan of £200,000.

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Its analysis also found the cost of a three-year fixed-rate mortgage at 90 per cent LTV rose by 17.2 per cent year-on-year in November 2020, an increase from £4.31 to £5.05 per £1,000 borrowed.

Meanwhile, the cost of five-year fixed-rate mortgages at 90 per cent LTV saw a “more modest” rise of 9.7 per cent, from £4.35 to £4.77 per £1,000 borrowed.

Neil Wyatt, sales and marketing director at Mortgage Brain, said: “Lenders have understandably taken a more cautious approach to their product ranges due to the operational and potential economic impacts that have been experienced as a result of the Covid-19 pandemic, and that’s been seen most clearly with the products on offer to borrowers with a deposit of just 10 per cent.

“Not only has there been a significant reduction in the availability of these products, but the costs of the products that are on the market have increased to a striking extent.”

But Mr Wyatt said higher costs were not confined to borrowers with small deposits.

Costs for borrowers at lower LTV bands also grew over the year, but by smaller amounts.

The cost of a two-year fixed rate at 60 per cent LTV grew 2.96 per cent, from £3.71 to £3.82 per £1,000 borrowed. Additionally, the cost of a three-year fixed rate at the same LTV rose 6.53 per cent over the year, from £3.98 to £4.24 per £1,000 borrowed.

However, mortgage costs on five-year fixed rates at 60 per cent, 70 per cent, and 80 per cent LTV all dropped over the past 12 months by 4.95 per cent, 3.42 per cent and 3.8 per cent respectively.

Kevin Dunn, director at Furnley House, said he believed supply and demand had led to an increase in rates, particularly in the higher LTV space.

Mr Dunn said: “A combination of a glut of clients taking advantage of stamp duty holidays and an unfulfilled increase in enquiries in the early part of the year, along with a reduced processing capacity from lenders, has seen lenders remove their higher loan to value offerings. In fact a couple of lenders have indeed removed all products at points over the last nine months.

“To take advantage of this and to try to slow demand, lenders still in the 90 per cent loan to value space have increased rates – which I can’t really argue with.”

He added: “I can’t see them reduce at this level until other lenders return to the 90 per cent loan to value space.”

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