Interest rates on fixed rate mortgages being increased for those with smaller deposits
According to a recent report a number of lenders have been hiking up the interest rates charged on their fixed rate mortgage products in the event that the borrower cannot put down a fairly sizeable deposit.
Officials have said that those with smaller deposits to put down on their mortgage loan are being penalised by banks, who are using this as an excuse to increase the interest rate being charged on the fixed rate mortgage product, leaving the consumer with larger monthly repayments for several years or more.
In some cases the amount by which the interest rate on the fixed rate mortgage is being increased is fairly high, with some lenders, for example, increased the fixed rate mortgage interest rate from 3.99 percent to 5.99 percent simply because the borrower can only put down a deposit of 15 percent rather than 25 percent.
One industry official said: ‘Lender focus is still very much on those borrowers with chunky deposits. While many fixed rates have been steadily falling it’s a different story for those with small deposits. Lack of competition and limited appetite for higher-risk lending has left these deals static at much higher interest rates.’
It is hoped that the return to the mortgage market of the nationalised bank, Northern Rock, will help to boost the number of banks that are prepared to accept lower deposits from customers without penalising them, as the Rock intends to offer mortgage of up to 90 percent as part of its £14 billion return to the mortgage market.
However, others have said that those with a smaller deposit are at more risk of falling behind with repayments or falling into negative equity, and therefore the banks are right to charge them more to cover the increased risks.
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