Drop in 95% LTV mortgage competition hits first-time buyers

With the total number of 95% loan-to-value (LTV) mortgage deals falling, while those on a 90% LTV are on the rise, first-time buyers may want to wait until they can save for a 10% deposit to take advantage of the better rates.

Research from Moneyfacts UK Mortgage Trends Treasury Report reveals that the total number of products at a maximum 95% LTV have fallen by 11, from 391 deals in August 2019 to 380 this month, while the number at a maximum 90% LTV has increased by 12, from 762 products in August 2019 to 774 now.

In addition to this, the report also found that despite the five-year SWAP rate dipping below the two-year SWAP rate at the beginning of August, on a 95% LTV mortgage, the average five-year fixed rate has increased by 0.01% to 3.64% between August and September. The average rate on a 90% LTV has, in comparison, fallen by 0.05% from 3.00% to 2.95% during this same period.

This trend can be seen throughout the mortgage charts, with deals at a lower LTV tier rising and average five-year rates falling.

Residential mortgage product analysis 

LTV availability - Total products 

Average five-year fixed rate - by LTV

Back in May, the head of the Prudential Regulation Authority (PRA) warned mortgage lenders that they were being watched ‘like a hawk’ in regards to offering riskier mortgage deals. This could have resulted in providers shying away from lending to the riskier 95% LTV market and instead focusing on offering more competitive rates for the lower LTV tiers that are seen as a less risky option for lenders.

Commenting of the reduction in 95% LTV competition, Darren Cook, finance expert at Moneyfactscompare.co.uk, said: “It is clear that most lenders are staying away from competing at the 95% LTV tier, with many now focusing their attention on mortgage business at LTV tiers of 90% and below. As lenders perhaps opt to pass on the benefits of lower interest rate SWAPs onto the lower LTV tiers, up to and including mortgages that require a 10% deposit, this is not good news for those borrowers who can only muster up a 5% deposit.

“In fact, the gap between the average rate at the 95% and 90% LTV tiers for a five-year fixed deal is widening, with the difference between the two averages standing at 0.69% for September, up from 0.64% at the start of June, following the PRA warning. This could mean that those borrowers with a smaller 5% deposit may benefit from waiting to save until they accumulate a 10% deposit in order to secure a more favourable rate and have a greater choice of products – with double the number of mortgages on offer at the 90% LTV compared to the 95% LTV tier.”