Premium rises for those with smallest deposits
Average mortgage rates are falling across the market, but they are not falling equally, according to Moneyfacts.
The financial information provider found that the gap between the 60% loan-to-value (LTV) bracket and the highest LTV band (95%) has expanded, by 0.31% in just six months.
In other words, the premium paid by borrowers with a small deposit compared with those who put down a large slice of equity is growing.
Mind the mortgage gap
In April 2012 the average two-year fixed rate for borrowers with just 5% upfront was 5.62%, while those with a 40% deposit paid only 4.20% – a gap of 1.42 percentage points.
Now that gap has grown to 2.37%, with 95% LTV two-year fixes at 4.18% compared to 1.81% for 60% LTV deals.
Charlotte Nelson, finance expert at Moneyfacts.co.uk, said: “With improvements seen throughout the mortgage market of late, particularly for those with a 5% deposit, many would assume that the LTV-gap would have narrowed or even been bridged. However, it is disappointing to find that the reverse is true, with the gap bigger now than it was five years ago.
“Deals on the market today can seem worlds apart, particularly when you look at the lowest deals available on the market. For example, the lowest two-year fixed rate on the market at 60% LTV is 0.99%, whereas the lowest at 95% stands at 3.29% – a whopping 2.30% difference.
“First-time buyers may feel that they are hit almost twice, with them not only having to struggle to gather enough cash for a deposit, but then also face a significantly higher rate which could see them pay an extra £184.74 a month (based on a 25-year repayment mortgage of £150,000.”