LTV rate differentials narrow

Borrowers are paying less of a premium for higher loan-to-value mortgages as the price difference between lower-LTV and higher-LTV products has narrowed.

Data from Moneyfacts.co.uk shows the average rate on a 60 per cent LTV fixed-rate product today is 4.33 per cent and the average 90 per cent LTV fixed rate is 5.47 per cent, a difference of 1.14 per cent.

In February 2011, the average 60 per cent LTV fixed rate was 4.53 per cent and the average 90 per cent LTV fixed rate was 6.25 per cent, a difference of 1.72 per cent.

This means that, on average, the premium paid for the extra 30 per cent LTV is 0.58 per cent lower than a year ago.

The difference has halved on tracker mortgages. Today, the average 60 per cent LTV tracker is 3.68 per cent and the average 90 per cent LTV tracker is 4.58 per cent, a difference of 0.9 per cent. A year ago, the average 60 per cent LTV tracker mortgage was 3.21 per cent while the average 90 per cent LTV tracker was 4.97 per cent, a difference of 1.76 per cent.

John Charcol senior technical manager Ray Boulger says: “There has been a trend for lenders to narrow the spread between higher and lower-LTV products.

“Logic would dictate that lenders would become more risk averse in light of the eurozone crisis but it has had the opposite effect because by accepting a bit more risk, lenders can get more margin at a time when funding costs are rising.”