However, it's not all positive news - consumer confidence and demand might be improving but borrowers are still facing a huge shortage in choice when it comes to mortgages. The number of tracker products available has plummeted 81% over the past 12-months, according to research we've done here at moneysupermarket.com. And even though wholesale borrowing costs are at a 20-year low and the Bank of England base rate hasn't changed since March, mortgage rates are still climbing.
Louise Cuming, mortgage expert at moneysupermarket.com, said: "The fall in the number of mortgages, highlights how the last 12 to 18 months have seen a complete meltdown in the market. Coupled with that, we've got mortgage rates that are completely divorced from the wholesale borrowing rate and to add insult to injury, mortgage rates are at their highest level for months. It's a stark reminder that lenders call the tune and competition is no longer the name of the game."
The advice to anyone looking for a mortgage is therefore: don't hang around.
What's available?
Trackers
Even though the number of tracker mortgages has shrunk, many of the products that are available are still more competitively priced than the leading fixed rate deals.
Trackers won't suit everyone because the rate you pay is linked to the base rate, so your payments will go up or down with interest rate changes. Those with existing tracker mortgages obviously benefited when interest rates were slashed between October last year and March. However, with the base rate as low as it's likely to go at 0.5%, the next move in interest rates will almost definitely be upwards.
That said, there are some great tracker deals available for new borrowers so don't rule out a variable mortgage if you can afford for your payments to rise. The Co-operative Bank has a three-year tracker at 2.39%. This deal is available to those with a deposit of 25% or more and there is an arrangement fee of £995, although anyone remortgaging will have the cost of the valuation refunded and legal work paid.
Alternatively, if you'd prefer a longer term deal, HSBC has a lifetime tracker at 2.74%. The fee is £999, although those remortgaging receive free legal work. However, this deal requires a larger deposit - at least 40%.
A major advantage of lifetime trackers is their flexibility - they tend to be penalty free, which means that you can jump out and remortgage onto another product at any time without incurring an early redemption charge (ERC). Most shorter-term trackers and fixed rate deals levy an ERC if you redeem the loan during that introductory term.
The minimum deposit requirement on the HSBC loan is obviously high at 40%. If you have less than that to put down, First Direct has a competitive lifetime tracker at 2.98% that is available for loans up to 75% of the property's value - although existing First Direct mortgage customers don't qualify. This is an offset, so you can reduce the amount of interest you pay by setting your savings against your borrowings. The fee on this deal is £999.
Fixed rates
The big advantage of a fixed mortgage is that your payments won't change during the term and for some people this security is really important, even if you have to pay a premium to get it.
For those wanting a two-year fix, HSBC and First Direct lead the way. If you're moving house and have a deposit of 40% or more, HSBC's deal at 2.94% has the lowest rate. However the fee is high at £2,099.
First Direct has a two-year deal with a slightly higher rate of 3.34%, available for loans up to 60%, but the fee is lower at £1,498. This product will be better value than the HSBC deal for those remortgaging - not only because of the lower fee but also because legal fees are paid on remortgages. It may also work out cheaper over the two-year term on purchases too, although this will depend on your loan size so you'll need to do the sums.
It's vital to work in the total cost, including set-up fees, over the term of the deal when comparing mortgage products as the headline rate can be deceiving. You may find that a deal with a higher rate but lower arrangement fee actually works out cheaper - it will all depend on the size of the mortgage.
Natwest has a two-year fix at 3.69% that is available for loans up to 75% with a £799 arrangement fee. Again, the lower upfront cost means that, depending on the loan value, it could work out cheaper than the HSBC deal at 2.98% for some borrowers.
If you'd prefer a longer term fix, Chelsea Building Society has the leading five-year fixed rate at 4.80%. Available for loans up to 65%, the arrangement fee is £995 and those remortgaging receive a refunded valuation and free legal work.
The Co-operative has a five-year deal that's available up to 75% at 4.99%. The fee is the same as Chelsea's at £995 and it includes the same freebies for those remortgaging.
What about first time buyers or those with little equity in their home?
Many people are still struggling to get a mortgage because, as highlighted above, the best deals are only available to those with significant deposits. However, there are options if you can scrape together 10%.
Again, the lowest rates are available on variable rate deals. HSBC has a lifetime tracker at 4.59% available for loans up to 90%, with a £999 arrangement fee. If you'd prefer a fix, Clydesdale Bank has a two-year deal at 5.99%. The fee on this product is £999, although anyone remortgaging receives free legal work and £510 refunded on the cost of the valuation.
Seek advice if you're unsure
Mention the word mortgage, and many people's eyes glaze over. If you don't really know what you're looking for or are unsure about how to work out which deal will offer best value, speak to an independent mortgage adviser. Identifying the most competitive product for your circumstances could literally save you hundreds, if not thousands of pounds in interest over the term, so it's well worth spending some time doing thorough research.
Disclaimer: Please note that any rates or deals mentioned in this article were available at the time of writing.
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