AmTrust Mortgage Loan to Value (LTV) Tracker

05 May 2017

Small deposit borrowers continue to pay significantly more for their mortgages than those with 25% deposits 

• Mortgage pricing continues to drop for those with larger deposits.
• Those with only 5% see an increase in average rates and monthly payments.
• Real product availability at 95% LTV far less than ‘official numbers’ of products

Talk of a ‘mortgage price war’ and intense competition for mortgage customers is yet to filter down to those who are only able to save small deposits, according to the latest AmTrust LTV tracker.

Mortgage products launched at record low rates have been hitting the headlines recently for those with significant deposits/equity however those who are only able to put 5% down on a property are continuing to pay significantly more for their mortgages.

Typically it is first-time buyers with small deposits who are facing monthly mortgage payments close to 70% more than those who are able to put down 25% of their property’s value.

Homeowners with a 5% deposit pay an average of £790 in monthly repayments, £324 more than the £466 paid each month by those with 75% loan-to-value (LTV) mortgages. This is a further increase in 2017 given that 95% LTV mortgage holders paid on average £294 more at the end of 2016; indeed, while the cost for 75% LTV mortgages has dropped from £468 to £466 per month, for 95% LTV loans the cost has increased from £762 per month.

Table 1: Average monthly repayments: 75% LTV mortgages and 95% LTV mortgages* 

Source: AmTrust International, Mortgage and Special Risks, Money Saving Expert, CML, Bank of England

According to the Bank of England, average interest rates for those with 25% deposit/equity have decreased sharply over the past 12 months. In March 2016, the average 75% LTV mortgage product was priced at 1.9% - in March 2017 this had dropped to 1.37%; this has been falling since an average rate of 1.91% was reached in May 2016.

This fall in average mortgage rates has not been sustained for those with 95% LTV mortgages. Bank of England figures show that the average rate for those with 5% deposit/equity has increased over the past 12 months, up from 3.92% in March 2016 to 4% in March 2017.

The average rate for 95% LTV mortgages has been increasing throughout 2017 from its December 2016 low of 3.62%. The price differential between 75% and 95% LTV mortgages has increased since the last iteration of AmTrust’s LTV Tracker, rising from 2.24% at the end of 2016 to 2.63% in March 2017.

AmTrust believes the continued lender focus on customers with larger deposits, coupled with the closure of the Help to Buy Mortgage Guarantee Scheme (HTB2) and a number of scheme members choosing not to offer 5% deposit loans in 2017, means a lack of product option for those potential homeowners in this bracket. 

True 95% LTV product availability lags way behind ‘official numbers’

Previous iterations of the LTV tracker have compared the total number of both 75% and 95% LTV products ‘officially’ available in the market. However, total product numbers do not provide the true picture when it comes to the mortgages those with either 5% or 25% deposit are actually able to secure.

This iteration of the survey has looked at the number of product options available to those with either a 5% or 25% deposit based on the price of an average first-time buyer house, the price of an average house as outlined by the March 2017 Halifax House Price Index, and the price of a house at the top of the first tier of stamp duty land tax.

AmTrust used one of the online mortgage search engines which includes deals available to both mortgage advisers and direct-only to conduct its research.

The search revealed that, for those wanting to purchase a property at both the average first-time buyer price in the UK (£157,637) and the average UK house price (£219,775), with only a 5% deposit/equity, there was only one two-year product of any type available. Broadening this out to any term, the search revealed only six products in total were available. Compare this to the often hundreds of products available from lenders to those borrowers who are able to put down a 25% deposit.

The research also found that the more money borrowers are able to put down – even if it is only 5% of the property price – the more products become available. At a house price of £250,000, if the borrower can produce a £12,500 deposit, the mortgage market options open up with 62 products available on a two-year basis, and 155 products for all terms/all types.

Table 2: Number of products currently available at 75% and 95% LTV at three different house price levels

Source: AmTrust International, Mortgage and Special Risks, Money Saving Expert, CML, Bank of England, Halifax

Simon Crone, Commercial Director, AmTrust International, Mortgage and Special Risks commented:

“As 2017 has progressed the mortgage price war which appears to be raging has not taken in those seeking high LTV mortgage products. If anything, the differential between rates has grown and as those with 25% deposits benefit from significant lender competition, those who are reliant on access to 5%-deposit loans have seen the cost of their monthly mortgage payment rise.

“The end of HTB2 marked something of a watershed with a number of scheme members continuing to offer loans at 90% but not proceeding with their 95% LTV products. While a number of lenders are utilising private mortgage insurance in order to keep their risk down and maintain their commitment to first-time buyers, we are clearly seeing the start of a new environment for high LTV mortgages. Especially when you consider real access to 95% LTV loans, compared to what might seemingly be available.

“The number of total 95% mortgages available is purported to be in the hundreds however, as our research shows, if you are seeking a property valued at the average obtained by first-time buyers in the UK and you only have a 5% deposit to put down, then there are slim pickings to choose from.

“If you are looking for a two-year deal of any type then according to one of the most widely used mortgage best buy search engines, there is only one product that will meet your needs. While we acknowledge that mortgage advisers may be able to find specific products to meet specific circumstances and affordability, search engines are often the first port of call for first-timers and they are likely to be left particularly disappointed by these results.

“Indeed, it’s only when borrowers are looking to buy a more expensive property, and therefore put slightly more deposit down – albeit still 5% of the property price – that the market opens up slightly with more product availability. Are we effectively working in a mortgage market that forces first-time borrowers to look at higher-priced properties in order that they have more mortgage products to choose from?

“The catalyst provided by the introduction of HTB2 is in danger of being lost, and with a General Election on the horizon plus the ‘Brexit negotiations’ to follow, we could be looking at a much more subdued high LTV market for a longer period of time than is necessary. The Government’s own Housing White Paper will require lenders to commit to high LTV lending, and while a number are, we would like to see more options for low-deposit borrowers, with lenders utilising private mortgage insurance in order to help ‘average first-timers’ purchasing homes at average prices secure access to far more than at best half a dozen product options.”