Loans at 95% LTV getting cheaper: Moneyfacts

The cost of 95 per cent loan-to-value mortgages has been falling relative to those at 90 per cent as a result of heightened competition, research by has found.

The margin between the cost of two-year fixed rate mortgages at 90 and 95 per cent loan-to-value, is at its narrowest in seven years.

The difference between the average cost of mortgages at these two LTV thresholds is currently 0.65 per cent, down from a high of 1.57 per cent in October 2017. finance expert Darren Cook says: “It is evident that healthy competition among mortgage providers at the maximum 95 per cent LTV tier has been the catalyst in causing the average two-year fixed mortgage rate at this level to fall by 0.72 per cent in the last year, down from 4.02 per cent in March 2018 to 3.30 per cent today.

“A mortgage provider’s provision for costs, such as funding and administration expenses, are seemingly a constant addition to a mortgage rate, irrespective of different LTV tiers.

“Therefore, the biggest contributing factor to the difference between a 90 per cent and 95 per cent LTV mortgage rate can be attributed to a provider making provision for future ‘probability of default’ on the mortgage.

“In other words, providers need to factor in the greater potential of default on higher-LTV mortgages, which is why rates are typically higher at 95 per cent LTV – but as we have seen, they are increasingly willing to sacrifice these margins in order to compete.

Average two-year fixed rate higher loan-to-value margins

Max 90% LTV average rate Max 95% LTV average rate Margin attributed to risk
Today 2.65% 3.30% 0.65%
Jan 2019 2.69% 3.46% 0.77%
Oct 2017 2.62% 4.19% 1.57%
Feb 2013 4.80% 5.43% 0.63%


Cook adds: “Indeed, the average two-year fixed rate at max 90 per cent LTV has changed little since October 2017, increasing by only 0.03 per cent to 2.65 per cent today.

“However, the average at max 95 per cent LTV has fallen by a significant 0.95 per cent to 3.30 per cent over the same period.

“It therefore seems that mortgage providers are forfeiting a portion of their provision for risk at this higher tier in their desire to secure the business of potential first-time buyers, who are the lifeblood of the mortgage market.”

Cook says that while this may seem like brilliant news for first-time buyers, affordability restrictions mean that many will still not be able to borrow as much as they would like.

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