You are here: Home -

Small deposit premium shrinking

0
Written by: Christina Hoghton
24/05/2016
The gap between rates for borrowers with large and small deposits is narrowing, as competition heightens in the high loan-to-value market.

The difference in rates between the average two-year fixed mortgage at 60% and 90% loan-to-value (LTV) has reduced by 0.93% to 1.03% in just two years.

Heightened competition in the mortgage market has given those with smaller deposits a boost, as not only are there more deals for borrowers to choose from but there are also lower rates, reducing the premium paid by those with small deposit.

Charlotte Nelson, finance expert at Moneyfacts.co.uk, said: “The fact that the difference in rates between two-year fixed 60% and 90% LTV mortgages is shrinking is excellent news for borrowers with small 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 a much greater equity in their home.

“Although a rise in base rate seems to have faded into the background for the time being, it seems providers are still choosing to lower rates now in preparation, so that when base rate does rise and borrowers are incentivised to remortgage, they will see their current lender as a competitive option.”

Up the risk curve

Providers initially chose to lower rates for ‘less risky’ borrowers, so the majority of cuts were aimed at the 60% and 65% LTV tiers, according to Moneyfacts. 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 has made it increasingly acceptable to lend at a higher LTV.

Nelson added: “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.”

There are 0 Comment(s)

If you wish to comment without signing in, click your cursor in the top box and tick the 'Sign in as a guest' box at the bottom.

Autumn Statement: Everything you need to know at a glance

Yesterday Chancellor Jeremy Hunt made his first fiscal statement in the role, outlining a range of tax measure...

End of Help to Buy: 10 alternatives for first-time buyers

The deadline for Help to Buy Equity Loan applications passed on 31 October. If you’re a first-time buyer who...

Moving to an energy prepayment meter: Everything you need to know

As households struggle with the soaring cost of energy, tens of thousands of billpayers are expected to move o...

What will happen if rates change

How your finances will be impacted by a rise in interest rates.

Regular Savings Calculator

Small regular contributions can build up nicely over time.

Online Savings Calculator

Work out how your online savings can build over time.

DIY investors: 10 common mistakes to avoid

For those without the help and experience of an adviser, here are 10 common DIY investor mistakes to avoid.

Mortgage down-valuations: Tips to avoid pulling out of a house sale

Down-valuations are on the rise. So, what does it mean for home buyers, and what can you do?

Five tips for surviving a bear market mauling

The S&P 500 has slipped into bear market territory and for UK investors, the FTSE 250 is also on the edge. Her...

Money Tips of the Week