The price gap between mortgages for people with small and large deposits is getting bigger, new research shows.
According to a study by Genworth and Moneyfacts, the extra borrowing cost for buyers with 5 per cent deposits hit a record high in September.
The average 95 per cent loan-to-value two-year fixed rate rose more than twice as fast as at 75 per cent loan-to-value in the six months to September, widening the price gap from 2.69 per cent to a new record of 2.81 per cent. Average 95 per cent loan-to-value rates remained more than double the 75 per cent loan-to-value average.
Because the higher 95 per cent rates are charged on the full loan, consumers also pay a far heavier price in interest repayments for their extra borrowing above 75 per cent loan-to-value.
Simon Crone, Genworth vice president of mortgage insurance for Europe, comments:
“Simply needing a high loan-to-value mortgage is no real indication of someone’s credit quality, but these findings show homebuyers with a 5 per cent deposit are being made to pay a rising premium that rivals the costs of unsecured borrowing.
“The option for lenders to get capital relief through government or private insurance partnerships is supporting some of the more competitive rates on the market without sacrificing underwriting standards or compromising on financial stability.
“High loan-to-value borrowers will be left counting the cost of capital pressures on lenders until the use of insurance partnerships becomes more common across the market to satisfy regulatory requirements without burdening consumers in the process.”
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