Home borrowers in UK benefitting from low interest rates with all making savings

The interest rate gap between low and high loan to value mortgages in the UK has reached a year-long high since the result of the referendum to leave the European Union, new research shows

Average rates have fallen three times faster for those with bigger deposits compared to those with small deposits since the referendum, the AmTrust/Moneyfacts data also shows.

The tracker report points out that lower rates mean first time buyers can save more than £384 compared to a year ago, however borrowers in the 90% LTV band can now save £528 over the same 12 month period.

Also, the overall number of mortgage products is up 8%, while the number of 95% LTV products is down marginally by 3% and in the three months since the Brexit vote first time buyers have been hit hardest.

A breakdown of the figures shows that 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 LTV loan is falling at a much slower pace.

The report explains that as a result of low interest rates, the cost of borrowing continues to fall. While still heavily favourable to the lower LTV market, this is a welcome development for all borrowers.

The average monthly payment for a 95% LTV mortgage borrower reduced from £822 to £790 between September 2015 and September 2016, a 4% reduction, and a saving equal to £384 per annum for first time buyers.

However, those with bigger deposits make greater savings compared to a year ago. For example, for those with a 90% LTV loan the typical cost of monthly repayments has fallen by £44 a month, equal to £528 a year, another sign of the hurdles facing first time buyers as they enter the property market.

It also shows that the number of mortgage products available on the market increases, while first time buyer product choice have stagnated. There were 747 75% LTV products available in October, the highest number since November 2015 and up 8% from June. The largest increases here came in the 75% to 90% LTV bracket, meaning those who can save larger deposits benefitted from the greatest array of mortgage choice in October for almost 12 months.

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. A further sign the market is shifting further and further away from the first time buyer.

‘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,’ said Simon Crone, commercial director of AmTrust International, Mortgage and Special Risks.

‘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,’ he pointed out.

However, he believes that the end of the Help to Buy Mortgage Guarantee Scheme and the EU referendum result should not mean the end of healthy levels of high LTV lending. ‘Private mortgage insurance is a powerful tool that lenders can use to support lending at high LTVs while protecting the taxpayer by minimising systemic risk and keeping lending standards high,’ he added.