21. September 2009 20:21
Borrowers with a 10% deposit have seen just a 0.12% drop in the average mortgage rate over the last year, despite the cost of funding to lenders falling 4.35%.
By comparison, those with a 40% deposit have seen a 1.86% reduction in the average mortgage rate.
Of course there'll always be a gap between juicy low-risk mortgage lending and higher-risk, lower deposit deals—but it doesn't seem right that the gap is so large. It's not just profiteering—it's genuine anxiety on the part of lenders, who haven't wanted to bet on the extent of dropping house prices (they know how much of a bubble the housing market has resembled, wouldn't you say?)
In a few months though, we'll see competition come back in on higher loan-to-value mortgages. Lenders who have access to funds will be needing to tempt this sector of buyers back into the action—there's only a limited supply of people trading down with 40% or more equity.