15th October 2025
High LTV mortgages are on the rise again. But are lenders complying with the Consumer Duty standards, by clearly disclosing risks and costs during the mortgage purchase journey?
The current economic environment and the latest regulatory updates are unlocking a new chapter for the UK mortgage market. In particular, the share of high Loan-to-Value (LTV) mortgages has reached levels not seen since 2008, rising to 6.7% in Q1 2025, a 91.4% increase from its value a decade ago.[1]
On the one hand, these changes in lending dynamics, driven by the easing of affordability rules under the FCA reforms, the Bank of England’s recent rate cut to 4% and the increased property prices, opened favourable opportunities to first-time buyers. However, questions and risks associated with transparency and consumer understanding are rising simultaneously.
For providers, complying with the FCA’s Consumer Duty guidelines to ensure customers make informed decisions won’t be enough. Mortgage suppliers are expected to disclose information better and improve transparency to avoid misunderstandings and behavioural biases.
The Importance of LTV Ratios
Understanding the risk of high LTVs is essential when selecting a mortgage. Taking out a loan that requires as little as 5% or 10% deposits sounds appealing. However, it comes with trade-offs that both lenders and borrowers need to consider.
High LTV mortgages carry significantly higher interest rates and monthly repayments. In addition, a relatively small change in the LTV, and therefore in the deposit amount, leads to a more pronounced change in the interest rate. The reasons behind these variations are not limited to the lenders’ protection against greater risks, but are also driven by the borrowers having less equity to buffer against market fluctuations.
These types of mortgages place lenders in a more vulnerable position to negative equity. In the event of a downturn in property prices or a rise in interest rates, the outstanding debt would exceed the property’s market value. Their elevated risk of default is additionally combined with the higher repossession rates and greater losses that lenders would face.
Clearer Disclosure = Better Consumer Outcomes
Market participants are aware of the FCA’s Consumer Duty framework, and providers are emphasizing their ability to deliver clear and relevant information to consumers. However, if the economy and the market dynamics are leading back to a high LTV mortgage world, we would expect to see lenders highlighting the implications of high LTVs at the early stages of the purchase journey.
This means that we would expect providers to clearly disclose:
That lower deposits result in higher interest rates and monthly payments.
That high LTV mortgages carry greater risks.
That opting for a lower LTV can lead to significantly lower overall borrowing costs.
That having a slightly higher deposit amount could secure a noticeable reduction in rate.
Some lenders are already doing this well. For instance, Virgin Money and Yorkshire Building Society provide dedicated sections that outline the risks of low-deposit mortgages.
Nationwide goes a step further. On its mortgage page, the meaning, benefits, and, more significantly, the risks of high LTV mortgages are clearly explained.
The advertising style of high LTV mortgages plays a crucial role. Buyers’ decisions, especially first-time buyers, can be influenced by strap lines, such as “just a 5% deposit”. But this floats very close to the line towards enticing people into a risky financial decision.
Similarly, overestimating the potential growth of income and property prices, or not considering the risk of increased interest rates or economic downturns, can result in problematic and misleading outcomes if consumers are not given the right information.
Additionally, present bias can be a potential trap in these processes, as borrowers might prioritize immediate rewards, as present affordability, over future financial stability.
With lenders explaining costs, risks, and alternatives early in the process, the chances of borrowers making more comprehensive and sustainable decisions would increase.
Strengthening Safer and Fairer Lending in a Dynamic Market
In today’s fast-changing and uncertain economy, informed decision-making is more important than ever. Lenders' roles go beyond just providing capital; they also aim to create knowledgeable and safe borrowing experiences.
To support better financial outcomes, lenders should actively promote transparency about LTV thresholds and encourage consumers to consider lower options, where possible. This isn’t just our view. This is the foundation of the FCA’s expectation under Consumer Duty: ensuring fair value and customer understanding.
High LTV mortgages aren’t necessarily a bad option. They can be a valuable gateway to the housing ladder for those who know that their financial circumstances are set to improve over the next few years. But they carry a cost, and they are not right for many. Although the Government is cheerleading the industry to lend more to more consumers, lenders should not forget their obligations under the Consumer Duty.
[1] Mortgage Lenders and Administrators Statistics - 2025 Q1 | Bank of England