The era of rock-bottom mortgage rates is ending — especially for those with low deposits. Borrowers taking out a 95 per cent loan today will pay almost £25 more a month than had they taken the loan out at the beginning of the year, based on a £150,000 mortgage stretching 25 years on a repayment basis.
The figures collated by Moneyfacts, the consumer analyst, show that while mortgage deals have remained unchanged since January for those with a larger amount of equity, for those with 5 per cent deposits, the poorest buyers, the situation has worsened.
Six months ago an average two-year fixed-rate mortgage at 95 per cent loan to value (LTV) had an interest rate of 3.89 per cent, but that figure has risen to 4.18 per cent. However, the deals for those with a 10 per cent deposit (90 per cent LTV) have barely shifted at 2.7 per cent today compared with 2.72 per cent in January.
Moneyfacts suggests that the government’s decision to end its Help to Buy mortgage guarantee scheme — where it compensated loan companies should a borrower with a small deposit default — at the end of last year is contributing to lenders’ caution.
Rachel Springall, a finance expert at Moneyfacts, says that “the removal of the Help to Buy Scheme as well as higher lending scrutiny more recently has had a combined effect on the market”.
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The mortgage guarantee scheme announced by George Osborne, the former chancellor, in his 2013 budget aimed to encourage banks to lend to people they considered more risky, and it helped more than 86,000 households before being wound up on December 31 last year.
At present there are 274 products at 95 per cent LTV on the market, compared with 62 five years ago, according to Moneyfacts, but the quality is deteriorating. Jonathan Harris, the director of Anderson Harris, a mortgage broker, says: “Lenders should try to keep their pricing consistent across all LTV bands and allow first-time buyers to benefit from the cheapest mortgage environment we have ever had.”
Research by LMS, a conveyancing company, shows that remortgages went up in June as borrowers rushed to fix their rates before a rise; 35,913 people locked in deals as low as 0.99 per cent fixed for two years — a 9 per cent increase from the 32,600 who remortgaged in May. “People thought the tide was about to turn, with a greater number expecting a rate rise in the next 12 months,” says Andy Knee, the chief executive of LMS.
