Hard-up borrowers are being offered high-risk mortgages for record low costs by banks desperate to win more business.
High Street lenders have cut the costs for customers taking out a mortgage worth 90 per cent of their home, figures show.
The price war even continued after November, when the Bank of England decided to raise the base interest rate for the first time in a decade.
Lenders have cut the costs for customers taking out a mortgage worth 90% of their home
This move would normally lead to mortgage costs rising across the board, but competition at the riskiest end of the market is so fierce that there has been no impact.
The average interest paid by borrowers for a two-year fixed rate mortgage at 90 per cent was 2.36 per cent in October, just before the base rate was hiked.
It then dropped to an all-time low of 2.15 per cent in January before rising to 2.21 per cent, Bank of England figures show.
This would mean a buyer of a £200,000 house, taking out a £180,000 mortgage – 90 per cent of its value – would pay £781 a month. The fall is good news for first-time buyers, but is likely to cause alarm that trouble is being stored up for the future.
If interest rates return to where they were before the financial crisis, borrowers could face a standard variable rate as high as 9.75 per cent.
It means the same £180,000 loan would cost £1,604 a month – a huge increase which many might find themselves unable to pay.
And if borrowers have only a 10 per cent deposit, they are more at risk of getting trapped in negative equity if the market drops.