Mortgage lenders dip back into high loan-to-value

Mortgage lenders are showing a renewed appetite to offer loans for 90 per cent of a property’s value, as competition increases for borrowers with smaller deposits.

The number of products available to borrowers with a 10 per cent deposit has risen from 56 in August to 114 this month, according to Moneyfacts.co.uk, the comparison service. Two years ago, at the peak of the housing boom, there were 509 products available at 90 per cent loan-to-value (LTV). By November 2008, there were just 133, with many lenders demanding deposits of more than 25 per cent.

But lenders are now starting to relax their requirements. Last week, Royal Bank of Scotland’s arm launched a two-year tracker with an initial rate of 4.79 per cent – bank base rate plus 4.29 per cent – for a maximum LTV of 90 per cent. With an arrangement fee of £999, brokers said the rate was very competitive.

“We’ve seen a trend over the last three to four weeks of more lenders coming out with 85 per cent and 90 per cent LTV products – I think there’s every reason this will continue,” said Ray Boulger of John Charcol.

Brokers said the key difference with the RBS product is that it is available to all borrowers. So far, most products with high LTVs have only been available to first-time buyers.

Nigel Bedford, mortgage manager at largemortgageloans.com, said: “I think that more banks will start offering more and better high loan-to-value deals in the next six to 12 months, as long as there is no significant fall in house prices.”

Boulger said it was sensible that lenders did not limit high LTV products to first-time buyers. “Anybody who bought a property with a high LTV mortgage over the last few years is now likely to be on at least 90 per cent loan-to-value now.”

However, most lenders remain hesitant to offer high LTV deals for borrowers looking to remortgage. According to largemortgageloans.com, there are only 19 deals available in England for borrowers wanting to remortgage at 90 per cent loan-to-value.

Bedford said that, apart from one deal from the Chorley & District Building Society, all rates are more than 5.99 per cent.

“As virtually all lenders’ standard variable rates are lower than this, there is no reason for customers with existing high LTV mortgages to remortgage at the moment,” he said.

Homebuyers with a deposit of more than 10 per cent have a wider choice of products available to them. According to Moneyfacts, the number of products with a LTV of 85 per cent increased from 75 in August to 245 in November.

Accord Mortgages, a subsidiary of Yorkshire Building Society, is offering a two-year tracker at 4.49 per cent – base rate plus 3.99 per cent – at a maximum LTV of 85 per cent. The deal has an arrangement fee of £1,090.

Brokers said the competition follows a more aggressive strategy from Northern Rock after its government bailout was approved by the European Union.

“The biggest impact has been on the low LTV sector but it has also spilled over into high loans-to-value as rival lenders have tried to steal a march in other areas,” said David Hollingworth of London & Country mortgage brokers.

But Hollingworth said borrowers will have to meet much tougher credit scoring to get a high LTV mortgage.

“If you’ve got a fairly middling to low credit score then you could find you won’t be able to access the high LTV deals,” he warned. “There will be more significant box ticking in terms of the borrower’s profile.”

The increased level of competition in the high loan-to-value market has not yet spread to loans for borrowers with a deposit of only 5 per cent. There are only a handful of products at 95 per cent LTV. Yorkshire Bank offers a three-year fixed rate at 6.99 per cent with an arrangement fee of £599. Boulger of John Charcol believed more lenders would be offering 95 per cent LTV mortgages by the end of 2010.