Is there a lender that specialises in lending to people with small deposits?
The high-street deals I have seen either are not available with my LTV or are extremely expensive.
the reason that mortgage rates are higher with high ltvs is mainly because there is less competition as fewer lenders want to be active in that market.
also there is a greater potential of loss to the lender if you default as the equity would soon be eaten away with legal and sale costs involved in repossession.
finally, lenders have to keep more "dead" money on deposit with the Bank of England on deals that involve an ltv above 75%. typically it has been suggested that 8x as much has to be held for a 90% mortgage compared to a 75%. this means that the lender cannot lend that money out and so will need to make the profit on it by ramping the rates on those borrowers that cause the "problem".
the exceptions to these rules are for some lenders when you apply for shared-equity mortgages as they will calculate the ltv treating the shared portion as a part of your equity ie
purchase price £100000. £25000 shared equity leaving £75000 for you to finance. if you put down £5000 deposit the more generous lenders would see this as a 70% mortgage as they still have first place in the pecking order if you default.
the downside is that fewer lenders are active in this market compared to a few years ago as many of those borrowers have since defaulted so again they are seen as high risk lending.
unfair perhaps to those good payers but that's how the underwriting process works, lenders have to judge on their experience of all applications - good and bad. | 01.07.11 @ 19:36