The number of 95% LTV mortgages drops

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The total number of products at the maximum 95% loan-to-value (LTV) has fallen by 11 from 391 deals in August to 380 this month, Moneyfacts data has shown.

Meanwhile the average 5-year fixed rate at this tier increased by 0.01% to 3.64% over the same period.

Darren Cook, finance expert at Moneyfacts, said that this is despite the 5-year interest rate SWAP, the market that lenders generally use to hedge themselves against future interest rate fluctuation, reducing by 0.10% from 0.67% to 0.57% since the beginning of last month.

He said: “It seems from our trend analysis that lenders have taken heed of the Prudential Regulation Authority’s (PRA) warning at the end of May this year concerning the reduction of rates on riskier higher LTV mortgages.

“It is clear that most lenders are staying away from competing at the 95% LTV tier, with many now focusing their attention on mortgage business at LTV tiers of 90% and below.

“As lenders perhaps opt to pass on the benefits of lower interest rate SWAPs onto the lower LTV tiers, up to and including mortgages that require a 10% deposit, this is not good news for those borrowers who can only muster up a 5% deposit.

“In fact, the gap between the average rate at the 95% and 90% LTV tiers for a five-year fixed deal is widening, with the difference between the two averages standing at 0.69% for September, up from 0.64% at the start of June, following the PRA warning.

“This could mean that those borrowers with a smaller 5% deposit may benefit from waiting to save until they accumulate a 10% deposit in order to secure a more favourable rate and have a greater choice of products – with double the number of mortgages on offer at the 90% LTV compared to the 95% LTV tier.”

However, the total number of products at maximum 90% LTV has increased by 12, from 762 products in August to 774 this month and the 5-year average fixed rate at 90% LTV decreased by 0.05% from 3.00% to 2.95% over the same period.

In addition, the average 5-year fixed rate at 80% LTV dropped by 0.10% to 2.77% and at 60% LTV, the rate has fallen by 0.05% to 2.18%.

Cook added: “Lenders may now be deciding to recoup the cost of the default risk portion of rates that they previously sacrificed while cutting rates at the 95% LTV tier when competition was rife and appeared to be isolated at this riskier LTV tier prior to the regulator giving its warning back in May 2019.

“Although some providers have increased their appetite for mortgage lending, most lenders seem to be competing on rate to retain their existing borrowers and lower wholesale funding costs could be a sign that we may see rate competition intensify across all fixed rate mortgage LTV tiers, apart from the 95% LTV tier.”

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