Indeed, the average 2-year fixed rate at 95% LTV has fallen by 2.08% to 3.25% in the past five years, while the maximum 60% LTV tier has fallen by around half that figure (1.06%) from 2.96% to 1.90% over the same period.
The average 2-year fixed rate mortgage rate at each loan-to-value tier has fallen over the past five years, with the 90% and 95% LTV tiers reducing at the greatest rate since August 2018, Moneyfacts data has found.
Indeed, the average 2-year fixed rate at 95% LTV has fallen by 2.08% to 3.25% in the past five years, while the maximum 60% LTV tier has fallen by around half that figure (1.06%) from 2.96% to 1.90% over the same period.
This causes disparity of interest rates between LTV tiers to narrow and flattens the LTV risk curve.
Darren Cook, finance expert atMoneyfacts.co.uk, said: “First-time buyers or those borrowers seeking higher LTVs seem to have benefited the most as providers appear to be competing for this business by driving interest rates down.
“In fact, the average 2-year fixed rate at 95% loan-to-value has fallen by 2.08% to 3.25% over the past five years and the disparity between the average rate two-year fixed rate at 90% and 95% LTV has nearly halved to 0.60%.
“As a result, although those first-time buyers able to raise at least a 10% deposit – where the average rate now stands at 2.65% – will still ultimately benefit compared to borrowers with a 5% deposit, they will benefit less significantly than they would have done five years ago.
“The trajectory of LTV risk curve seen five years ago is possibly what one would expect considering the incline in interest rates as the probability of default escalates up the LTV tiers.
“However, today’s curve trajectory indicates that downward pressure on interest rates across most of the LTV tiers has caused this LTV risk curve to flatten, as providers seem to have sacrificed some risk by lowering rates at the higher LTV tiers in order to maintain a competitive edge.
“With the current intense competition and squeezed margins, in particular at the riskier high LTV tiers, it is unlikely that providers will be able to decrease interest rates much further.
“With the LTV risk curve appearing flatter, it is important that borrowers look at all appropriate LTV tiers to see if they are seeing the best product that may suit their needs.”
Meanwhile, provider competition in the fixed rate market has also resulted in a notable increase in the number of products available at several LTV tiers.
The number of products available at the 75% LTV tier has increased by 55 to 275 products, 85% LTVs by 70 to 267 products, 90% LTVs by 144 to 288 products and 95% LTV by 73 to 147 products today.
Danny Belton, head of lender relationships, Legal & General Mortgage Club, said that increased competition in the market has inevitably put pressure on rates, as more lenders have been looking to increase their margins in higher loan-to-value (LTV) areas, such as 95% LTV.
He added: “While The Bank of England’s Term Funding Scheme (TFS) has now ended, it’s also provided cheaper funding to banks over the last few years which has reduced costs.
“New build is a key area for high LTV loans, yet not all customers may want to use the current Help to Buy or Shared Ownership schemes available.
“Also, some customers may wish to leave the respective scheme after the initial 5-year term. Some lenders, particularly regional building societies, are providing high LTV products to support those customers.
“While some headlines may deem 95% LTVs as ‘risky’ – stress testing, loan to income (LTI) ratios and current affordability rules prevent borrowers from overstretching themselves.
“So, for those looking to take out a high LTV product, seeking the expertise of a mortgage adviser is paramount. Not only do these professionals have access to a much wider range of mortgage products but are also at hand to help borrowers find the best product to suit their unique circumstances.”
