The mortgage market has entered 2026 in fairly rude health. Moneyfacts says borrowers now have access to more residential mortgage products than they have since October 2007.
The number of products at higher LTV ratios has grown as lenders have responded to falling rates by loosening criteria and re-entering the low-deposit space more aggressively. Product availability at 90% and 95% LTV now sits at near 18-year highs. There are 927 products at 90% LTV and 489 at 95% LTV. Average two-year fixed rates at these higher LTV levels have dipped to around 5.09% at 90% and 5.29% at 95%.
This huge expansion in choice and the accompanying lower rates have improved affordability for many borrowers, particularly those who struggled during the higher-rate environment after the mini-Budget.
Competition among lenders has driven innovation in product design and pricing, helping more people access homeownership or remortgage on better terms.
And regulators are doing their bit, too. The greater flexibility that is being permitted on high loan-to-income lending is also supporting first-time buyers and those with smaller deposits.
But all this positivity comes with some real risks that borrowers and lenders need to watch.
Low-deposit options might tempt people to stretch themselves too thin. Even with borrowing a little on the cheaper side, monthly payments can still bite hard. Borrowers may end up taking on bigger loans than their finances can handle long-term. When a fixed deal finishes, a rate rise could hit with a nasty payment shock, pushing costs up sharply when they apply for a new fix.
High-LTV loans make things riskier still. A 95% LTV mortgage starts with almost no equity buffer. If house prices dip even a little, negative equity can creep up fast, limiting options. Prices look like they're stabilising rather than soaring, with most forecasts calling for flat or modest growth this year. That will leave a thinner cushion and less room for market wobbles.
The broader economic backdrop could heighten these concerns. Cost-of-living pressures linger for many, and any unexpected income shock such as job loss or reduced hours could tip stretched households into arrears. This is not unrealistic. The great British job machine is already faltering. Unemployment is rising, with the overall rate at 5.1%, the highest since the pandemic (among 18 to 24-year-olds it is already at a shocking 13.4%). The private sector has shed 150,000 jobs over the past year. Default risks rise when affordability is marginal, and forced sales become more likely in difficult circumstances. Borrowers often chase the short-term lure of lower rates in good times without thinking through the longer picture.
Lenders have their own headaches as they look to compete in this sort of environment. Looser criteria, especially for first-time buyers and low-deposit borrowers, increase overall credit risk. Defaults and arrears could rise if the economy softens, leaving balance sheets more vulnerable in a downturn. Cutting rates to grab business squeezes margins and risk-adjusted returns, leaving lenders sensitive to any rise in funding costs or unexpected shifts in swap rates.
High-LTV portfolios bring more exposure to negative equity if values fall, hiking potential losses on defaults and requiring more capital under rules. More products and applications mean heavier workloads for underwriting and risk teams, plus tougher arrears handling. With margins already tight that strain could build up fast.
A reversal in the current rate environment would compound these issues. We don’t have to look far to see how this might play out courtesy of Donald Trump’s latest tariffs. Higher tariffs will raise costs across the economy. If those pressures persist, inflation could remain above the Bank of England’s 2% target for longer. It was generally expected that falling inflation would lead the Bank to make one or maybe two cuts to the interest rate this year. This might make the Bank of England more cautious. Should external shocks and inflation push rates higher, lenders holding portfolios of low-rate, thin-margin loans could see profitability squeezed. Refinancing activity might slow sharply, limiting new business opportunities. Capital requirements could tighten in response to heightened risks, constraining lending capacity.
So, while the current boom in product availability – and the revival of low-deposit lending – reflect a healthier, more competitive market after years of constraint, they also change the risk landscape in transforms the risk picture in ways that call for caution. Consumers risk borrowing beyond sustainable levels, facing negative equity or payment shocks that could strain finances over time. Lenders risk higher credit losses, squeezed margins, too much exposure to particular segments of the market and operational pressures. Both sides are benefiting from the current upswing. But keeping an eye on long-term affordability and sensible risk-taking will be key to making sure things stay on track.
