Low-deposit borrowing costs rise ‘substantially’ in 12 months

The cost of borrowing for low deposits has increased “substantially” across all mortgage types over the last 12 months, according to new analysis from Mortgage Brain.

The mortgage technology expert suggested the cost of a 90% LTV two-year fixed rate mortgage has jumped by more than 28% between November 2019 and November 2020.

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

Similarly, the analysis also showed that the cost of a three-year fixed rate mortgage at 90% LTV has risen by 17.2% across the same period – which equates to an increase from £4.31 to £5.05 per £1,000 borrowed.

The cost of five-year fixed rate mortgages at this LTV band have seen a more modest rise of 9.7% – moving from £4.35 to £4.77 per £1,000 borrowed – while for a loan of £200,000, the increases in the annual payments are £1,776 and £1,008 respectively.

Mortgage Brain sales and marketing director, Neil Wyatt, commented: “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.

“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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