Rates rise on low deposit mortgages

The Momentum UK Team 20 February 2014

A group of mortgage lenders have increased their rates on mortgages for those with low deposits, amid increasing funding costs and fears of a bank rate rise.

The rise in interest rates on 95% loan to value (LTV) mortgages came from Yorkshire Building Society group and Aldermore. It is thought that the move comes partly as a result of the Funding for Lending scheme no longer applying to mortgage lending, as well as fears of a possible increase in the Bank of England base rate. However, the Bank this week said that they expect rates to "remain at low levels for some time to come."

The Yorkshire group includes Barnsley, Chelsea, Norwich and Peterborough and Accord, and says that their rate has increased by 0.2% as a result of "considerable recent changes to swap rates". Yorkshire launched the biggest range of 95% LTV mortgages back in November last year, in order to compete with lenders operating under the government's Help to Buy scheme. Aaron Strutt, a mortgage broker at Trinity Financial Group, commented on the rate change:

"It’s been a surprise Yorkshire has been able to undercut so many of the biggest lenders and for so long,"

"But the competition is finally starting to catch up with them."

Aldermore who are participating in the Help to Buy scheme - unlike Yorkshire - have also increased their rates for borrowers with low deposits. Charles Haresnape, Managing Director of residential mortgages at Aldermore, said it was a sign of "the era of cheap money starting to wind down".

In general, mortgage rates for borrowers with larger deposits are still falling.