Mortgage blog: Low-deposit deals become more competitive

Posted 24 October 2014

New research has found that there has been a sharp reduction in the gap between the best mortgage deals for borrowers with different sized deposits.

Over the last year the cheapest deals at a higher loan-to-value (LTV) have become closer in cost to the best deals for borrowers with larger deposits, signalling that higher LTV customers are no long being penalised by paying higher rates.

Quarterly product data analysis from Mortgage Brain has found that the best 90% tracker deal is now just 8% higher than the best deal at 60% lending.

Just 0.26% between the best 60% and 90% deals

The research found that, on 1 October, the lowest five-year tracker rate for a property worth £180,000 at a 90% LTV was 3.65%. This is now just 8% higher than the same product with a 60% LTV limit, at 3.39%.

The same analysis 12 months ago showed that the best 90% deal was 71% higher than the lowest rate at 60%.

Similar reductions have also been seen in the gap between the lowest rate two-year tracker mortgages. The lowest-rate 90% LTV product in 2013 was 112% higher than the same product with a 60% LTV whereas now the rate differential is just 39%.

Mark Lofthouse, chief executive of Mortgage Brain, said the figures should not come as huge surprise: “The drop in the gap between 90% and 60% LTV rates will be welcomed by those with small deposits. It comes on the back of a number of years when the gap was increasing and should help new home owners to take their first steps on the housing ladder.”

Keith Osborne, editor of Whathouse.com, says: “For years, borrowers with small deposits have been forced to pay much higher interest rates than lower-risk customers. Now the gap is narrowing it means that the competitive deals are now becoming widely available, which is great news.”

Buy-to-let mortgages showing opposite pattern

While the gap between the cost of residential mortgages has narrowed, the analysis showed that the buy-to-let sector behaved very differently. The data revealed that the gap between the lowest rate two-year fixed products (60% and 80% LTV) increased from 66% in 2013 to 77% in October – a rise of 11%.

The gap between the best two-year tracker products for buy-to-let has also widened. A year ago the best 80% deal was 77% higher than its 60% LTV counterpart, but 12 months on the gap has widened to 87%.

The best 80% LTV deal is currently available at a rate of 3.73% whereas the best 60% deal is at 1.99%.

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