High LTV costs paving way for top-up loans

The cost of high LTV mortgages could lead to top-up mortgages becoming more common, says Ray Boulger, senior technical director at John Charcol.

Boulger says because of expen-sive rates at 90% LTV borrowers could find it cheaper to use a 75% LTV mortgage with a 15% secured loan top-up.

But he says: “There is clearly something wrong with our regulat-ions if secured loans are being used in this way. Either the cost of capital at high LTVs is too much or it is too low on secured loans.”

Regulation of secured loans will be transferred from the Office of Fair Trading to the Financial Ser-vices Authority in 2012.

Assetz is launching a top-up loan later this year that will consist of a 75% LTV mortgage topped up with a 15% secured loan with an average rate of around 5-6%.

Stuart Law, chief executive of Assetz, says it could lend more than 90% LTV for certain borrow-ers but it will only be done with the cooperation of the other lender.

He says: “We don’t see this as a replacement for bank lending but rather a substi-tute for the home buyer scheme and builders’ shared equity schemes.

“The recent withdrawal of these products has made it the right time to enter the market.”

Housing minister Grant Shapps is chairing a first-time buyer summit this week with the FSA, the Council of Mortgage Lenders and representatives from major banks.

The meeting will focus on how the industry can help first-time buyers get on to the housing ladder.

Shapps says: “One thing we know for a fact is that it’s very difficult to get a mortgage even when you have quite a large deposit and that is obviously something that we want to drill down on.”