Competition hots up in the high LTV sector

Mortgages of up to 125% of a property\'s purchase price are getting a lot of coverage in the national and trade media at the moment.

There have been reports that the number of buyers taking out 100% LTV mortgages has doubled in a year and the take-up of mortgages of above 100% LTV has risen 95%.

The growth of borrowers’ interest in this type of high LTV mortgage accounts for the recent entry of several new lenders to this market.

Until a few months ago, Northern Rock dominated the sector with its Together deal. But BM Solutions has recently launched its Mortgage Plus deal and the two lenders have been reportedly locked in a price war ever since.

Hot on their heels, Alliance & Leicester has also announced its intention to enter the market with its Plus Mortgage. And there is an-ecdotal evidence that other players will launch similar products this year.

This type of product is a different proposition to a straightforward mortgage.

It works by combining a secured mortgage with an unsecured loan at a single interest rate with a combined monthly payment.

This combination can be worth upwards of 125% of the purchase price of a house.

Such bundled mortgages offer borrowers the opp-ortunity to either buy properties without deposits or remortgage to reduce their monthly borrowing costs.

While these deals won’t be suitable for everyone, they could suit high credit quality borrowers who are buying for the first time with no deposits and first or next-time buyers planning to renovate their properties or consolidate debt.

For borrowers looking to consolidate debt, this type of product gives them the ability to do so at a competitive rate – this can be significantly cheaper than other forms of lending.

Our research suggests that intermediaries believe bundled mortgages are much cheaper than other forms of debt consolidation.

As more graduates from universities accumulate loans to repay during their working lives, it is not controversial to suggest that they should delay buying houses until they have big enough deposits available.

However, provided they have the disposable income and credit scores needed to qualify for bundled mortgages, they can make their home ownership dreams a reality much more quickly.

So the spotlight is on bundled mortgages and this is good news for borrowers because more choice means more competitive pricing – and more favourable lending policies.

The growth in this sector demonstrates once again how dynamic this country’s mortgage market is when it comes to responding to the changing needs of borrowers.

It’s another sign that the UK has the most competitive mortgage market in the world.