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Mind the gap! High-LTV mortgages get cheaper

Mind the gap! High-LTV mortgages get cheaper

Category: Mortgages

Updated: 25/05/2016
First Published: 23/05/2016

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Are you looking to buy your first home, or perhaps want to move up the ladder but don't have much equity? Well, you're in luck! Our latest figures reveal that heightened competition in the mortgage market has given those with smaller deposits a boost, as not only are there more deals for such borrowers to choose from, but these mortgages now offer lower rates, too.

Indeed, the gap between higher loan-to-value (LTV) mortgages and those lower down the LTV scale is shrinking dramatically, with the research showing that the difference in rates between the average two-year fixed mortgage at 60% LTV and one at 90% has reduced by 0.93% in just two years.

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%

As Moneyfacts' Charlotte Nelson points out, this is "excellent news" for those with smaller deposits. "With the lowest two-year fixed rate at 90% LTV now standing at 1.99%, those with a deposit of just 10% can now secure a rate that was previously reserved for those with much greater equity in their home," she said, and with even the average 90% LTV rate now just 1.03% less than the average 60% LTV, there's never been a better time for new buyers to get on the ladder.

The continued cuts are coming despite the fact that a rise in base rate seems to have faded into the background for the time being, with it seeming that providers are still choosing to lower rates in preparation. This will mean that, when base rate does rise and borrowers are incentivised to remortgage, they'll see their current lender as a competitive option, making this a long-term strategy to retain business.

The fact that providers are now lowering rates for borrowers who would have once been deemed as riskier is particularly welcome, as Charlotte explains: "Originally, providers chose to lower rates for 'less risky' borrowers, so the majority of cuts were aimed at the 60% and 65% LTV tiers. However, as each sector of the market became saturated with highly competitive deals, providers started to branch rate cuts out into higher LTV bands, causing the difference in rates between 60% and 90% LTV mortgages to become narrower.

"At the same time, the launch of the Help to Buy scheme made it increasingly acceptable to lend at a higher LTV. Those looking for a mortgage at 95% LTV will therefore not be disappointed by the rates now offered, as the difference between two-year fixed mortgages at 60% and 95% LTV has shrunk by a significant 0.71% 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. What's more, thanks to the Mortgage Market Review, the strength of this market is not an indication that there has been a return to risky practices. Indeed, it has never been more important for potential borrowers to prove that they can afford the mortgage."

What next?

As the figures show, now could be a great time to get in on the action, so check out the top first-time buyer mortgages to get started

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.

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