First-time buyers and borrowers with small deposits or only a little equity in their property have been benefiting from the biggest plunges in mortgage rates, according to new figures.
Analysis of mortgages reveals customers borrowing up to 90% or 95% of their property’s value using a two-year fixed-rate mortgage will have experienced the advantages of plummeting rates over the past five years.
Indeed, rates on 95% LTV mortgages, have fallen by 2.08% in that time, with the average rate now standing at an attractive 3.25%.
Meanwhile, borrowers who have more of their own money, and need less of a loan, and are therefore borrowing at 60% LTV have benefited from far less attractive rate decreases.
Rates for people borrowing at this level have fallen by only 1.06% to 1.9% in five years, according to the analysis by Moneyfacts.co.uk, the financial data analysts.
Darren Cook, finance expert for Moneyfacts, said lenders in this ‘high LTV’ sector were competing for business, and this was driving down rates.
But while this means anyone borrowing using a two-year fixed-rate will be enjoying low rates now, Cook warned this might not last going forward.
He said: “With the current intense competition and squeezed margins, in particular at the riskier high LTV tiers, it is unlikely that providers will be able to decrease interest rates much further.
“With the LTV risk curve appearing flatter, it is important that borrowers look at all appropriate LTV tiers to see if they are seeing the best product that may suit their needs.”
Buy while market is ‘ripe’
This research was in line with findings by Defaqto, which also publishes financial data, and released figures earlier this month revealing mortgages requiring small deposits were increasing and rates on these were falling.
It said the combination of these attractive rates and house price growth slowing in some areas meant conditions were ‘ripe’ for first-time buyers looking to purchase their first home.
Katie Brain, insight analyst at Defaqto, said: “With stalling house prices and cheaper borrowing, we are entering a period of opportunity for buyers looking to make their first home purchase.
She added: “For those looking to get a mortgage, it is important to do your sums and check exactly what you can afford to borrow. While interest rates are low, an increase of just 1% can add hundreds of pounds to a monthly repayment and thousands to the overall cost of a home.”
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