Homeowners could find it almost impossible to find a new mortgage if they have only a small amount of equity in their homes when their current deal ends.
Lenders have pulled almost all of their remortgage deals for those borrowing at a high loan-to-value (LTV) rate, research for The Mail on Sunday has found.
The number of two and five-year fixed remortgage deals where you are borrowing 90 per cent of a property’s value has fallen dramatically, data from financial researcher Defaqto shows.
Struggle: Lenders have pulled almost all of their remortgage deals for those borrowing at a high loan-to-value rate
This time last year, there were 74 two-year fixed mortgage deals available for home owners with a 90 per cent LTV. But that fell sharply to just three in August 2020 – and those have now also been pulled.
It is a similar story for five-year fixed mortgages. There were 83 products available in the 90 per cent LTV category last year. But there were none left on the market until late last week when Metro Bank came out with a five-year fixed rate 90 per cent LTV deal.
Lenders are unwilling to lend to borrowers who they see as more risky over fears an impending house price crash could see them fall into negative equity.
It is a slightly better picture in the 85 per cent LTV market, with the number of two-year fixed rate deals falling from 68 this time last year to just 40 now.
However, interest rates have been creeping up, making the same products more expensive than 12 months ago. The rate rises could add a few hundred pounds on to the average mortgage.
For example, a homeowner with a house worth £300,000 and a loan to value of 85 per cent would pay an average interest rate of 2.53 per cent today. Payments for the year would total £13,776.
However, just one year ago the same homeowner would face an average rate of 2.18 per cent – and their annual repayments would have been £540 less.
The removal of remortgage deals comes after first-time buyers – who typically have a small deposit and need a high LTV mortgage – were hit by withdrawals of 90 per cent and 95 per cent mortgages.
Nick Morrey, from mortgage broker John Charcol, says he wasn’t surprised that the same thing was now happening in the remortgage market. ‘We saw products disappearing in the mortgage market and we are now seeing it happen in remortgaging as well,’ he said.
‘Lenders don’t want to be increasing their risk if they think property prices are going to fall,’ he added. Brian Brown, head of insight at Defaqto, said options are limited for people coming to the end of their current mortgages with a small amount of equity in their homes. ‘There simply aren’t any products out there,’ he said. ‘Back in March when the virus started to hit we saw 95 per cent LTV products drop out of the market very quickly, and at the beginning of September we saw this happen with 90 per cent LTV mortgages.
‘This is very unusual – I haven’t seen this type of activity since the financial crash. If you’re coming to the end of your fixed price deal then you should accept that you’re going to be paying more for your mortgage afterwards as you move on to the bank’s standard rate. Rates are still very low in historical terms, so you just have to hold on, sit tight and then remortgage when the higher LTV products come back on to the market. But you might have to wait a while.’
One bank that is bucking the trend is Metro Bank, which last week launched a 90 per cent LTV mortgage, available for first-time buyers and existing home owners alike.
Metro Bank is offering a five-year, fixed-rate starting at 3.99 per cent on properties valued up to £600,000.
Those remortgaging will not be able to increase the amount they borrow and there is a £999 fee, which can be added to the loan.
David Hollingworth, of L&C Mortgages, described the move as ‘welcome news’ and predicted that with such limited availability of high LTV mortgages on the market, the product might not be around for long due to demand.
‘Lenders continue to contend with capacity issues in a market of huge demand and deals for those with smaller deposits have largely remained limited to first-time buyers. Deals have come and gone again in a matter of days.’
BUT RECORD LOW RATES TO RELEASE CASH
Older homeowners who want to unlock cash from their homes are being offered the best rates on record.
The average interest rate on an equity release product has hit a record low of 3.8 per cent – down from 5.4 per cent just two years ago, according to Defaqto.
Six of the nine providers offer deals under 3 per cent. Equity release has been criticised in the past for eye-watering rates that quickly devoured the value of homes, leaving little or nothing for loved ones to inherit.
But rates have been falling in recent years as new providers enter the market and vie for business.
The range of products has also increased – up by 88 per cent in July from the start of 2019, according to the Equity Release Council. Some offer an inheritance guarantee to ensure there is something left to pass on to the homeowner’s family.
More than half offer downsize protection, which allows borrowers to move to a smaller property and pay off their loan in full.