Moneyfacts: Competition spikes for 95% LTV mortgages

Jessica Nangle

February 10, 2020

Competition for borrowers with a 5% deposit or equity has risen over the past year according to Moneyfacts’ UK Mortgage Trends Treasury Report.

The report, which has not yet been published, revealed that the average rates at 95% LTV on 2 and 5-year fixed rate mortgages stand at 3.22% and 3.52% respectively.

When comparing these rates to those seen a year ago, the average rate offered on a 2-year deal has decreased by 0.19% whilst rates offered on the 5-year equivalent has seen a drop of 0.26%.

The market has also improved in terms of choice and deals available, with 405 mortgage products across both fixed and variable that are available to borrowers seeking a 95% LTV.

This rise in product numbers is the highest in any month since May 2019 when there were 413 deals available, which coincided with the Bank of England’s Prudential Regulation Authority (PRA) warning over the rise in risky lending practices. 

Eleanor Williams, finance expert at Moneyfacts, said: “As our data shows, the market has picked up since the intervention by the PRA last year, with the average 95% LTV two and five-year mortgage rates falling by a notable amount.

“Indeed, the rates available now are much lower than they were two or even five years ago when the average 95% LTV mortgage was priced at over 5% for both sectors – good news for prospective borrowers.

“This seems to demonstrate that there continues to be competition among lenders in this ever-expanding section of the market.

“This may in part be due to lenders trying to attract the increasingly young first-time buyers, who they may then be able to keep on their books moving forwards as they remortgage over the years.

“This is further supported by the fact that over the last year, the number of high LTV deals that are available to remortgage customers has increased by 5% in both the two and five-year fixed rate sectors.

“This alone is great news for those borrowers who have struggled to find a new mortgage deal due to low levels of equity in their home.

“Looking forwards, SWAP rates have fallen over the last month, with the two-year SWAP reducing by 0.16% while the five-year SWAP rate has dropped by 0.24% – both now standing at 0.66% as a result.

“Historically, although falls of this nature are likely to take a few weeks before they might filter through, there is hope that average rates may reduce even further.

“Therefore, although last year’s economic uncertainty may have put some borrowers off taking out their first mortgage, or indeed tying themselves to a new deal, it seems that lenders are now actively competing to attract these customers, regardless of whether they are a first-time buyer or are looking to remortgage with a low level of equity.

“As with any financial commitment, it is vital that borrowers take into account the overall true cost of any deal and make sure that what they are committing to will be affordable over the long-term.

“Particularly with higher LTV products, talking with an independent financial adviser about the option to make overpayments in line with the lender’s boundaries may be a sensible precaution, and ensure they have an even wider pool of products available to them in the future.”

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