The average interest rate gap between high and low deposit mortgages hit a year-long high in September, according to a report.
The latest AmTrust Moneyfacts LTV tracker found that during the three months since the EU referendum those with large deposits to put down on their homes have enjoyed greater reductions in the cost of their borrowing compared to first-time buyers with modest deposits.
Following the Bank of England’s decision to lower the Bank Base Rate to 0.25% in August, mortgage rates fell across the board. However, the average cost of a high loan-to-value loan is falling at a much slower pace; the 0.05 percentage point decline for a 95% LTV mortgage in the last three months is just a third of the 0.15 percentage point drop for 75% LTV mortgages.
The gap in rates between the high and low (95/75%) class of LTV borrowers in September grew to 2.24 percentage points – the widest it’s been for almost a year (November 2015).
Product numbers on the up
The same picture is apparent when it comes to product choice. The number of overall mortgage products available on the market has risen, but first-time buyer choice has stagnated. There were 747 mortgages at 75% LTV available in October, the highest number since November 2015 (822). This is an increase of 8% from 689 in June.
However, between August to October an average of 239 95% LTV mortgages were available, down from an average of 247 in the three months leading up to the referendum – a decline of 3% in consumer choice. According to AmTrust International, this is a further sign the market is shifting further and further away from the first-time buyer.
Simon Crone, commercial director, said: “The drop in the price of mortgages is a welcome development for borrowers but the worry is the EU vote has led to a market distortion at the expense of first-time buyers with small deposits. The early signs are that borrowers with small deposits may not be benefiting as much because of less competition as lenders reassess their risk appetite and rely upon those with larger deposits instead.
“It would be a great shame if the positive steps taken by the industry and the government to improve lending to first-time buyers, after a calamitous collapse in the wake of the financial crisis, was undone over the months ahead. The next few months will be a key period as lenders decide on their risk strategies in this sector and the Help-to-Buy Mortgage Guarantee Scheme comes to an end.”