Rates For High Loan To Value Deals May Be Double Those Of Best Buy Loans
Over the course of the past couple of months or so, there have been a string of new best buy deals on homeowner loans entering the market, as banks and building societies are beginning to compete for the most attractive loan customers.
The main problem with these deals is that they usually only offer low loan to value ratios for borrowers, in many cases only up to a maximum of 60 per cent loan to value and this excludes many individuals who are looking to buy a house, particularly first time buyers, as they often simply do not have sufficient funds available to meet this tight lending criteria.
Although there are now an increasing number of high loan to value products entering the home owner loan market, with some lenders offering up to 90 per cent loan to value, the rates charged on these products is usually significantly higher than the best buy deals and in many cases, the interest rate charged on a 90 per cent loan to value deal can be double that of a deal which only offers 60 per cent loan to value, according to new research from Evaluate Technologies.
The average rate of a loan for someone with a 40 per cent deposit is just 2.5 per cent, whereas a 90 per cent loan will cost an average of 5.34 per cent.
Julie Speed of Evaluate Technologies said “It is encouraging that lenders are willing to lend to borrowers with small deposits but it is disheartening when you see the rates. With the Bank of England base rate at 0.5 per cent borrowers could be forgiven for thinking rates ought to be lower and that there should be good deals available.
There are but they tend to be restricted to those with big deposits who are seen as a lower risk. And the irony is that it is not necessarily the banks who are at fault but regulatory changes which mean lenders have to price for risk and add a premium on. In reality the lender has to hold more capital in reserve for a higher loan to value mortgage than for a lower one.”
