Why are lenders not giving bigger reductions for low LTV mortgages?

Sarenco

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It strikes me as odd that lenders are being so timid about favouring low LTV (<50%) borrowers. I would have thought that a non-jumbo mortgage to a borrower with a low LTV/LTI over 20 years or less should be very low risk from a lender's perspective and would merit a more deeply discounted interest rate. I wonder are any potential new lenders out there running the rule over the "ultra-prime" segment of the mortgage market?
 
If you take KBC's new rates to be announced - a 79% LTV will be 3.3% and a 31% LTV will be 3.2%. I agree with you that the risk profile of both of these customers (all other things remaining equal) should be less than 0.1%

I wonder are any potential new lenders out there running the rule over the "ultra-prime" segment of the mortgage market?
Personally, I hope so but would not be holding my breath. If one was to offer this new "ultra-prime" rate of say a <50% LTV and 2x LTI, what do you think would be a reasonable rate for that mortgage ? Just curious !

If this did happen, other banks would probably have to follow suit, which can only mean that higher LTV customers in particular would be charged higher rates to offset this.


The only downside I can see in this is because the outstanding mortgage amount is 'small' it would not be worth peoples time switching without incentive since the payback would be too long (unless the rate is very attractive).
 
The low LTV mortgages are almost as risky in Ireland. It is very difficult for a bank to repossess any house that's a PPR ...
If it was easier to repossess then the rates would be much lower.
 
The low LTV mortgages are almost as risky in Ireland

Are you sure on this? In that case why are banks offering lower rates to lower LTV's ?

Is you argument that in general its difficult to repossess and therefore all loans are risky? A 40% LTV is surely still less risky, since while it may take longer to repossess it, it is unlikely it will not cover the full mortgage even after the costly repossession. A 90% LTV may not cover itself in this process !
 
Are you sure on this? In that case why are banks offering lower rates to lower LTV's ?

Is you argument that in general its difficult to repossess and therefore all loans are risky? A 40% LTV is surely still less risky, since while it may take longer to repossess it, it is unlikely it will not cover the full mortgage even after the costly repossession. A 90% LTV may not cover itself in this process !

We know there is a strong correlation between negative equity and default rates so I assume a borrower with significant equity in a property is strongly incentivised to maintain repayment discipline. The "skin in the game" effect.

I certainly agree with SS expert that if it was easier to repossess in Ireland mortgage rates in general would be much lower.
 
That's the salient point. Regardless of LTV, it appears that someone can "park the bus" by paying nothing towards their mortgage, and remain in their home for years. Isn't it fairer to say that the higher rates charged by Irish banks are simply a risk premium?
 
I think so yes! I think once you pay something every month you wont get repossessed - ever
 
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