Quite a few mortgage lenders have started offering tiered mortgage rates. Preferential rates are available to people with low ‘loan-to-value’ mortgages.
eg. Your house is worth £200,000 & your mortgage is £150,000.
150,000/200,000 x 100 = 75%
The mortgage is at 75% loan-to-value.
People starting out on the property ladder (all 3 of them!) may only have a 10% deposit which means their mortgage will be at 90% loan-to-value.
Some lenders are now offering cheaper deals to people with mortgages below 75% loan-to-value with some restricting their best rates to 60% loan-to-value.
Woolwich has just announced a market leading fixed rate offer of 5.69% for 3 years (available from 29th Aug 08) if the loan-to-value is 60% or less while the rates for people who’s mortgage is above 60% LTV start at 6.19%
On a mortgage of £150,000 the difference in interest charged per month is £62.50.
Go above 80% LTV and their best rate is 6.49% which adds a further £37.50 to the monthly repayment or £100 compared to the rate of 5.69%.
So people trying to get on the property ladder are not only experiencing uncertain times regarding house price fluctuations but they are also charged more for their mortgage by some lenders. Which is the last thing people need when learning to budget and pay for the running of a home for the first time.