Gap closing on cost of mortgage borrowing with small and large deposits: AmTrust

Mortgage borrowers with smaller deposits are paying more than 50 per cent more on products than borrowers with larger deposits, according to the quarterly AmTrust Mortgage Loan to Value Tracker.

Those with smaller deposits pay an average of £821 per month/£9,852 each year, the study found, while those with 25 per cent deposits pay an average £527 per month/£6,324 per year.

However, despite two increases in Bank Base Rate over the last 12 months, product pricing has stayed consistent with the tracker showing a 34 basis points drop in the average rate for a 95 per cent LTV mortgage.

Meanwhile, average rates for those with a 25 per cent deposit increased by 1 basis point up to 1.75 per cent this quarter from 1.74 per cent in July.

The report says the rate differential between 75 per cent and 95 per cent LTV loans has therefore narrowed from 2.21 per cent in the last quarter to 1.86 per cent, showing a much more competitively-priced high LTV sector than in recent years.

AmTrust believes that, as the year comes to a close, there will be greater competition in the high LTV sector as lenders seek to secure increased business from first-timers and greater margin on their loans. Even with further increases to BBR, product pricing for lower-deposit mortgages may sustain their competitiveness as lenders look to increase business share in this part of the market.

AmTrust Mortgage and Credit business development director Pad Bamford says: “As we move into what is traditionally a very competitive time for the mortgage market, there is a lot to be encouraged about in this quarter’s LTV Tracker.

“Lower average rates translate into lower monthly and annual payments for those borrowers with a 5 per cent deposit, plus the differential between those with a bigger deposit has been narrowed, and we have seen a continued increase in the number of products available to high LTV borrowers.

“Such positive movement is, of course, to be welcomed however we are still concerned on a number of fronts. Saving for a deposit remains the biggest barrier to overcome and we are still at a point where many potential first-timers can only get on the housing ladder with the support of the Bank of Mum and Dad. While product numbers have moved upwards for high LTV borrowers, compared to those available at 75 per cent LTV, they are but a drop in the ocean.

“It means that, not only do first-timers have to save a significant deposit in order to find more product options but they might not meet the affordability criteria – even if they have a 5 per cent deposit – because the monthly mortgage cost is that much more.

“Government support to first-timers has improved, with cuts to stamp duty and the ongoing extension of the Help to Buy Scheme, but at some point the market has to stand on its own two feet and if lenders were able to use tools such as private mortgage insurance to mitigate their risk, not only would they be able to offer more product choice but they could bring pricing down closer to the levels that those borrowers with bigger deposits benefit from.”

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