Mortgage rates down

We’ve seen a number of mortgage providers reduce rates recently. Abbey and Alliance & Leicester have trimmed the cost of their four-year fixed rate deals by 0.10%. This means that both homebuyers and those remortgaging can lock in at just 4.99% until 2013 in exchange for a booking fee of £995.

First Direct has also reduced some if its mortgage rates – its offset lifetime tracker has a market-leading rate of just 2.79% with a £999 booking fee.

Other new products include a two-year fix from Leek United Building Society at 3.59% and a five-year fix from Newcastle Building Society at 4.99%.

This sudden spurt of activity followed HSBC’s launch of a two-year discount with a rate of just 1.99%. While the rate is amazingly low the fee is quite high at £1,199. Even so the fact some lenders are nudging rates downwards is good news for borrowers, because as Clare Francis explains in her video ‘What’s happening to savings and mortgage rates?’, borrowers seeking a new mortgage have been short-changed and seen the cost of deals fall in line with wholesale borrowing rates.

The privileged few…

There are still problems in the mortgage market though: it’s the same old story in these days of post-credit crunch sobriety – when it comes to the very best mortgage offers, only the privileged few can qualify.

Both Abbey and Alliance & Leicester require a minimum 30% deposit or equity on their new deals, while First Direct’s lifetime tracker and HSBC’s 1.99% discount are only available to those with a down payment of 40% or more.

With the cost of the average home now pegged just north of ₤160,000 according to Halifax, that’s an eye-watering ₤64,000 – a feat almost impossible for first-time buyers and tricky even for existing homeowners in light of the recent slide in property values.  

Even borrowers on the right side of the loan-to-value fence won’t be spoilt for choice. Although the past week has seen a spate of cuts in mortgage rates, experts are not forecasting this will be the shape of things to come. In reality, banks’ motivation to offer cheaper mortgage deals is just part of their own wider strategy to grab a larger share of the mortgage market.

The best deal for you

What ever the amount of equity in your home, all borrowers will want to ensure they are not paying a penny more in mortgage interest than they need to. While HSBC’s 1.99% two-year discount deal tops the tables for borrowers with a 40% deposit, those with 25% of a property value should also look at the lender’s two-year discount payable at 2.49% - though this comes with the same ₤1,199 fee.

Still on a two-year term, HSBC is offering borrowers in the 90% loan-to-value bracket a discount mortgage priced at 3.89%, again with the same fee.

Those 90% borrowers in search of a longer-term deal should consider NatWest’s lifetime tracker. Exclusively for first-time buyers, the deal is fee-free and currently pegged at 4.69%. Bear in mind, however, that this rate is variable for your repayments will rise if interest rates go up. With money often tight for first time buyers, many prefer the security of a fixed deal.

Yorkshire Bank has the leading two-year fix available for loans up to 90%. The rate is 5.99% and there is a £999 fee. However, first-timers should bear in mind they can get the same rate fixed for five years with Royal Bank of Scotland and pay no arrangement fee at all – so if you’re wanting to fix, it’s worth considering longer-term options as well.

Keeping abreast of your loan-to-value

If you’re an existing home owner looking to remortgage, things seem to be picking up a bit. Many borrowers have been affected by falling house prices and it’s not just those wanting to move.

The property’s value is important when it comes to remortgaging, particularly at the moment when so many mortgage deals are only available to those with large chunks of equity. The weakness of the housing market has left some homeowners struggling to qualify for a new mortgage. The indications that house prices may be beginning to rise again is therefore good news as it will help build up the amount of capital you have in your home.

House prices rose for the second month in a row in August - up by an average of 0.8%, according to Halifax.

First rung concerns

But news of rising house prices shouldn’t panic first-time buyers into stepping onto the ladder before they are ready. Property commentators are pretty unanimous that price rises will be sustainable and we won’t see a return to a runaway market.

Where time is of the essence, however, is when it comes to making use of the government’s Stamp Duty holiday. Since September 2008 the lowest threshold at which the property tax is payable (at 1%) has been increased from £125,000 to £175,000 – but the perk expires at the end of this year.

With a typical house purchase taking at least three months to complete, the effective deadline for mortgage applications is actually 30 September, according to Abbey. Research published by the bank this week shows that an estimated 35,000 home buyers are in danger of missing the deadline.

“With a saving of up to £1,750 at stake for those people who have been considering buying a property, this impending deadline is an added incentive to move fast,” said director of Abbey mortgages, Nici Audhlam-Gardiner.

Making the right choices

However, first-timers should be careful to weigh up the benefit of this saving with that of taking their time to gather together a larger deposit. Now more than ever, the more capital you can lay your hands on, the greater choice and cheaper mortgage deals will be available. And, ultimately, this will translate into perhaps more valuable savings over the long term…