The figures released by Nationwide building society yesterday offer a faint glimmer of hope that the housing market may be over the worst. Whether this slight upturn will become more sustained is still uncertain, however the large monthly price falls appear to be behind us.
We may start to see more people looking to move home now that things are showing early signs of settling down, but for those who have stepped beyond the 75% LTV marker, they may well be put off by the rates currently being charged by lenders.
Whilst you accept there is a greater risk for someone with a smaller deposit to put down, even if you look at a less risky scenario of a medium term fixed rate deal of five years the pricing penalty can amount to an additional 1.20% for having less than a 25% deposit.
The difference in the loading charged between 75% and 85% deals varies greatly with Northern Rock charging 1.20% more whereas Abbey are only pricing in an additional 0.40% on a five year fix.
On a £150,000 mortgage the additional rate loading can add over £100 per month to your repayments and £6,300 over the 5 year term.
Some lenders offer an in-between rate at 80% LTV rate, but even a 5% difference in the amount of equity you have at your disposal can add an extra 0.8% on your mortgage interest rate.
Greater house price stability is just one part of the equation that will see mortgage demand pick up, but with valuers no doubt erring on the side of caution at present, there will be many would be 75% plus borrowers holding back from their next home move.
Maybe lenders are factoring in additional profit whilst volumes are low, but unless they review their pricing then it's a bit of a catch 22 situation and mortgage and housing sales may well remain subdued.
