With several fixed rate mortgage deals being priced higher in the last couple of weeks, there is likely to be a surge in the number homeowners scrambling to lock into a decent deal whilst they have the chance.
However whereas some 18 months ago it didn't matter if you had, 40% or 10% equity in your property as you'd get the same rate, it's a totally different landscape now.
The latest figures highlight the difference in cost for a borrower with an 85% LTV requirement compared with someone seeking 75%. Whilst the customer with an 85% mortgage will pay extra as they are borrowing more money than a 75% LTV customer, they now also now face having to pay an additional hefty premium for the higher borrowing ratio.
The calculations are based on a five year fixed rate mortgage with a property value of £200,000 and a mortgage term of 25 years.
The extra you need to pay for needing to borrow an extra £20,000 or 10% LTV is quite staggering - more than £14000 over five years or £236 per month extra, of which £6431 or £107.19 per month in the case of Nationwide BS, relates purely to the interest loading on the higher LTV mortgage.
Whilst it is understandable to a degree that lenders have been more cautious, the loading between 75% and 85% LTV deals varies greatly with Abbey loading by 0.35%, Leeds BS by 0.50% but with NatWest and Nationwide BS by a full one per cent.
There will be many people now faced with being on the wrong side of the 75% line on the back of the sharp correction in property prices. Even though such borrowers will have an unblemished repayment history over a number of years they will be penalised with loaded interest rates purely due to the fact that the value of their property has fallen.
With house price falls starting to slow you have to start to question how much of this difference in pricing is risk related and how much is nothing more than a mechanism to boost profits at the customers' expense during these difficult times.
