Why are the lenders not charging much more for higher LTV loans?

[Brendan Burgess]

I was surprised last week when Ulster Bank announced the same fixed rates for all LTVs.

Today KBC announced new rates, and there isn't much of a gap between the lower and the higher LTVs. So I have charted a selection of them.

From my experience in attending the courts, I would be very reluctant to give any Irish borrower a mortgage of over 80%. There is a greater likelihood that they will default. And when they do, there is a bigger chance of negative equity and a loss on the loan.

The losses on a 60% LTV loan must be much lower. I doubt if an increased rate of 0.5% would pay for the increased losses on the 90% LTV loans.

And why are the gaps wider on variable rates and often non-existent on the fixed rates?

Brendan

 

[Clonback]

Perhaps the issue is ----Why are they not charging much less for lower LTV loans?

 

[RedOnion]

Perhaps the issue is ----Why are they not charging much less for lower LTV loans?

Exactly. Because they don't have to - the competition isn't forcing it down yet.

Plus there's the whole complexity of capital requirements. The RWA for a 60% LTV isn't much different to an 80% LTV so unless there's an impairment event, the cost to the bank is pretty much the same.

 

[Gordon Gekko]

Arguably, there is an opportunity in the market for a “superprime” product; e.g. LTVs at 60% or lower, six figure salary, etc. If the provider can fund itself at 1%, it could lend at 2%; surely that would satisfy that cohort of clients?