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Low-deposit mortgage deals fall in number and rise in cost

Written by: Mark Banham
There was a dip in ‘riskier’ 95 per cent loan-to-value mortgages during August
Low-deposit mortgage deals fall in number and rise in cost

Personal finance data company Moneyfacts has revealed that the number of mortgage products at a maximum 95 per cent loan to value (LTV) dropped by a total of 11 during August from 391 deals to 380.

The average five-year fixed rate at this tier inched up by 0.01 per cent to 3.64 per cent over the same period.

Bigger deposit = greater choice

However, the total number of products at maximum 90 per cent loan-to-value (LTV) increased by 12, from 762 products during the same period to 774. The five-year average fixed rate at 90 per cent LTV decreased by 0.05 per cent from 3 percent to 2.95 per cent over the same period.

Meanwhile, the average five-year fixed rate at 80 per cent LTV decreased by 0.10 per cent to 2.77 per cent. At 60 per cent LTV, the rate dropped by 0.05 per cent to 2.18 per cent, according to the data platform.

Darren Cook, finance expert at Moneyfacts, said: “It seems from our trend analysis that lenders have taken heed of the Prudential Regulation Authority’s (PRA) warning at the end of May this year concerning the reduction of rates on riskier higher LTV mortgages.”

He said that it was clear that most lenders were staying away from competing at the 95 per cent LTV tier, with many now focusing their attention on mortgage business at LTV tiers of 90 per cent and below.

“In fact, the gap between the average rate at the 95 per cent and 90 per cent LTV tiers for a five-year fixed deal is widening. The difference between the two averages stands at 0.69 per cent for September, up from 0.64 per cent at the start of June, following the PRA warning.

“This could mean that those borrowers with a smaller 5 per cent deposit may benefit from waiting to save until they accumulate a 10 per cent deposit in order to secure a more favourable rate and have a greater choice of products – with double the number of mortgages on offer at 90 per cent LTV compared to 95 per cent LTV.

“Although some providers have increased their appetite for mortgage lending most are competing on rate to retain existing borrowers and lower wholesale funding costs could be a sign that we may see rate competition intensify across all fixed rate mortgage LTV tiers, apart from the 95 per cent LTV tier,” Cook added.

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