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Significant growth in mortgage costs for low-deposit borrowers – study

The cost of borrowing for low-deposit borrowers has increased across all mortgage types over the last year, new data from Mortgage Brain has revealed.

The cost of a 90% loan-to-value (LTV) two-year fixed-rate mortgage has jumped by more than 28% between November 2019 and November 2020.

In monetary terms, this means the cost per £1,000 borrowed has grown from £4.06 to £5.22 over the year. This equates to an annual increase of £2,784 for a loan of £200,000.


Meanwhile, the cost of a three-year fixed-rate mortgage at 90% LTV has risen by 17.2% in the same period, equating to an increase from £4.31 to £5.05 per £1,000 borrowed. The cost of five-year fixed-rate mortgages at the LTV band has seen a more modest rise of 9.7%.

Borrowers at smaller LTV bands have also seen costs grow since last year. For example, the cost of a 60% LTV two-year fixed rate has grown 2.69% from £3.71 per £1,000 borrowed, while the cost of a three-year fixed rate at the same LTV band has jumped to £4.24 from £3.98 per £1,000 borrowed.

However, the mortgage expert says there is good news for borrowers looking at five-year fixed rates. Mortgage costs at 60%, 70% and 80% have all dropped over the last 12 months, by 4.95%, 3.42% and 3.80% respectively.

Neil Wyatt, sales and marketing director at Mortgage Brain, comments: “Lenders have understandably taken a more cautious approach to their product ranges due to the operational and potential economic impacts that have been experienced as a result of the Covid-19 pandemic, and that’s been seen most clearly with the products on offer to borrowers with a deposit of just 10%.”

“Not only has there been a significant reduction in the availability of these products, but the costs of the products that are on the market have increased to a striking extent.”

He adds: “It’s not just those with small deposits that face higher costs than a year ago though. In fact, it’s only five-year fixed-rate mortgages which have seen costs fall over the last 12 months.”


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