The first good news is that, despite no movement by the Bank of England, mortgage costs are seemingly still thawing. For example, Woolwich – the lending arm of Barclays – announced it was slashing the cost of its fixed, tracker and offset mortgage deals. The lender’s three-year fixed rate, which comes with a £999 fee, is now priced at just 3.99% for borrowers with a 30% deposit – down from the previous rate of 4.49%.
A fighting chance
But more central to the mortgage market’s return to health is Woolwich’s decision to extend these leanest rates so that only a 30% deposit is required. Previously, its lowest-rate deals were only available to those with at least 40% to put down.
Woolwich has also re-introduced a three-year fix available for loans up to 80% of a property’s value. However, as is indicative of the market, borrowers needing to borrow a higher proportion of the property’s value, are still having to pay a premium. The rate on this deal is 5.29% and there is a £999 application fee. Even so, it is welcome news that we are seeing more products on offer for higher loan to values as it’s been a real struggle for many of those with little equity in their home to get a mortgage since the onset of the credit crunch.
And Woolwich isn’t the only lender making moves which signify that competition in the mortgage market may be picking up again. Yorkshire and Clydesdale banks, which are both part of the same group, have removed the arrangement fees on a number of their products for those remortgaging.
But, while mortgage rates may be edging south for more borrowers, so are house prices. According to Halifax’s latest house price report, the cost of the average home slipped by a further 1.7% in April. This may not be as severe as the previous month’s fall of 1.9% but it points to the likelihood of further falls for 2009.
While affordability for those yet to get on the property ladder is clearly enhanced as a result of falling house prices, further reductions in property values will not help those needing to remortgage.
Many borrowers whose introductory fixed or discounted rates ended recently have been paying their lender’s standard variable rate (SVR) in the hope that rates on new mortgage deals may fall. However, while we have seen some price reductions recently lenders are warning that they are unlikely to drop much further (watch Clare Francis’ interview with Stephen Noakes, director of mortgages at Lloyds Banking Group). But if house prices continue to decline the amount of equity these people have in their homes will shrink.
Nici Audhlam-Gardiner, mortgage director at Alliance & Leicester, said: “Given the excellent rates on offer at the moment, it is concerning to see that a large proportion of borrowers are sticking with SVR or planning to wait until interest rates and house prices start rising again before tying into a new deal. By the time interest rates rise again it will be too late and the best deals will be gone. Also borrowers run the risk that their loan to values could have increased if the value of their home has fallen. We are looking at some of the lowest fixed rates in a decade and it is unlikely that they will fall any further, so borrowers looking to remortgage should act now.”
What rates are available?
With interest rates believed to be at the floor, demand for fixed rate mortgages is soaring as borrowers seek to lock in at this low level.
The cheapest deals are available on two year products. HSBC, for example, has a two-year fix at 2.89% with a £1,499 fee that is available for loans up to 60% of the property’s value.
However, an increasing number of people are choosing to fix for longer than this, even though they have to pay a premium for doing so. The reason for this is that, although most economists expect the base rate to remain at 0.5% for the rest of this year, and possibly into next year, it will start going back up again at some point. The risk of fixing for two years is that you may be looking to remortgage at a time when interest rates are going up and mortgage rates then, could be significantly higher than they are now.
If you’d prefer to take a longer term view, Coventry Building Society has a five-year fix at 4.49% with a £999 arrangement fee that is available for loans up to 65%.
As is always the case, there is more to a mortgage deal than just the rate, fees and deposit requirements – your credit history and other eligibility requirements will be vital in determining whether or not your application is accepted. If you are at all unsure about what type of mortgage to go for and how much you will be able to borrow, an independent broker will be able to help.
Disclaimer: Please note that any rates or deals mentioned in this article were available at the time of writing.