Significant growth in mortgage costs for low-deposit borrowers

03 December 2020

The cost of borrowing for low-deposit borrowers has increased substantially across all mortgage types over the last 12 months, new data analysis from mortgage technology expert Mortgage Brain has revealed.

For example, the cost of a 90% loan-to-value (LTV) two-year fixed rate mortgage has jumped by more than 28% between November 2019 and November 2020. In monetary terms that means the cost per £1,000 borrowed has grown from £4.06 to £5.22 over the year. For a loan of £200,000 this equates to an annual increase of £2,784.

The cost of a three-year fixed rate mortgage at 90% LTV has risen by 17.2% across the same period, which equates to an increase from £4.31 to £5.05 per £1,000 borrowed, while the cost of five-year fixed rate mortgages at this LTV band have seen a more modest rise of 9.7%, moving from £4.35 to £4.77 per £1,000 borrowed. For a loan of £200,000 the increases in the annual payments are £1,776 and £1,008 respectively.

Borrowers at smaller LTV bands have also seen costs grow over the year, albeit by smaller amounts. For example, the cost of a 60% LTV two-year fixed rate has grown 2.96% from £3.71 to £3.82 per £1,000 borrowed, while the cost of a three year fixed rate at the same LTV band has jumped to £4.24 from £3.98 per £1,000 borrowed, an increase of 6.53% over the year. However, there is better news for borrowers looking at five-year fixed rates. Mortgage costs at 60%, 70% and 80% have all dropped over the last 12 months, by 4.95%, 3.42% and 3.80% respectively.

Neil Wyatt, sales and marketing director at Mortgage Brain, commented: “Lenders have understandably taken a more cautious approach to their product ranges due to the operational and potential economic impacts that have been experienced as a result of the Covid-19 pandemic, and that’s been seen most clearly with the products on offer to borrowers with a deposit of just 10%. Not only has there been a significant reduction in the availability of these products, but the costs of the products that are on the market have increased to a striking extent.

“It’s not just those with small deposits that face higher costs than a year ago though. In fact, it’s only five-year fixed rate mortgages which have seen costs fall over the last 12 months.”