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Rates rise at higher LTVs

Michael Lloyd

October 7, 2019

Rates at higher LTVs have increased from September, Moneyfacts’s UK Mortgage Trends Treasury Report has found.

The average 2-year fixed rate at maximum 95% LTV has risen by 0.05% from 3.23% in September to 3.28%.

Meanwhile, the average 2-year fix at 90% LTV has increased by only 0.01% to 2.65% since last month.

Darren Cook, finance expert at Moneyfacts, said: “It appears that mortgage providers may be factoring in a larger proportion of default risk into rates at higher LTVs, where among other things, competition and lower wholesale funding costs seem to be benefiting borrowers who have a greater equity stake in their property and are sharing much more of the risk with the lender at lower LTV bands.”

The difference between the average rates at 90% and 95% LTV stands at 0.63%.

In contrast, the average 2-year fix at a maximum 60% LTV has decreased by 0.04% to 1.80% between September and October.

Cook added: “The difference in average rates between 90% and 95% LTVs has historically always been greater than differences in average rates between LTVs lower down the tier scale, so it is always worthwhile for a potential first-time buyer to try to raise an additional deposit and attempt to step down the ladder to find a mortgage at lower interest rates.

“With rates at the 95% LTV rising faster than at any other tier at the moment, it is likely the gap between these two higher LTV tiers, which currently stands at 0.63%, could widen in the coming months.

“Higher LTV fixed mortgage rates may be creeping up, but the affordability of these products may be helped by the fact that of the 107 two-year fixed rate products at maximum 95% LTV available to first-time buyers, 98 are available up to a maximum mortgage term of either 35 or 40 years and 94 products are available up to a maximum age of 75 years of age or above at the end of the mortgage term.

“This enables borrowers to lower their monthly repayments by spreading the cost, which as a result makes them more affordable – helping to pass stringent affordability tests when applying for a mortgage.”


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