The latest figures from the Council of Mortgage Lenders (CML) showed that the mortgage slump continues with lending 27% lower in July, than July last year. However, total lending was up 5% from June and with mortgage rates now coming down, the situation may improve further in the coming months.
Which providers have cut their rates?
Britain's two biggest lenders appear to be engaged in something of a rate war with Halifax and Abbey aggressively undercutting each other. Halifax has reduced some rates by up to 45 percentage points and its two-year tracker at 5.59% is 0.1 percentage point below Abbey's two-year tracker at 5.69%.
However, it is not only Halifax and Abbey that have been slashing rates. Cheltenham & Gloucester (C&G), First Direct, Britannia building society and ING Direct are also among the lenders to have reduced some of their rates in recent days.
This activity is welcome news, but it doesn't spell the end of the problems in the mortgage market. With house prices falling and bad debt levels rising, banks and building societies remain cautious about who they'll lend to. Consequently, most of the reductions we've seen have been on products available to those with deposits of at least 25% or more. Life is still very tough for those wanting to borrow 90% or more of the property's value.
We look at what mortgages are available for different types of borrower.
First time buyers
Much of the current weakness in the housing market is caused by the absence of first time buyers. The number of loans advanced to first time buyers was 46% lower in June than in June last year, according to CML figures: if people aren't getting on to the bottom rung of the property ladder, the rest of it grinds to a halt.
However, while nervousness pervades the market and many aspiring homeowners are reluctant to buy at the moment in case house prices continue to fall, a shortage of mortgage deals for first time buyers is exacerbating the problem.
First time buyers should be looking to put down as large a deposit as possible. This will not only give you access to a wider choice of mortgage products but it will also give you greater protection against house price falls and reduce the risk of negative equity - this is when a property is worth less than the outstanding mortgage secured against it.
While the leading mortgage rates are generally available to those with deposits of 25% or more, there are a few competitive rates for those with less than that to put down.
HSBC has a two-year discount with a pay rate of 5.49%. The fee is £999, this must be paid upfront - it cannot be added to the loan - and the deal is available for loans up to 90% of the property's value.
If you can only raise a 5% deposit, Nationwide has a three-year tracker at 6.49%. The fee on this deal is £299
Both of these products are variable so your payments could go up if interest rates rise. If you would prefer the security of a fixed rate mortgage, Bradford & Bingley has a three-year fix at 7.39%. This is available for loans up to 95% and the fee is £999.
Home movers
If you are already on the property ladder and are fortunate enough to have benefited from the house price boom, you may well still have a significant equity stake in your current home despite the current market weakness. As a result you could be well placed to take advantage of the best rates available.
If you're looking for a fixed rate, C&G has a two-year deal at 5.49% available for loans up to 75%. The fee is high though at £2,094 so depending on the size of the mortgage you need, you may be better off with Yorkshire building society's two year fix at 5.54%. Again, this is available up to 75% of the property's value, but the fee is considerably lower at £895.
For those wanting longer-term security, Principality building society has the leading five-year fix at 5.59%. This is only available to those with a deposit of 40% or more and the fee is £999.
Another option worth considering is Newcastle building society's five-year fix at 5.60%. The minimum deposit is 25% and the set up costs are £1,098. This is an offset deal so you can set your savings against your mortgage, which means you pay less interest on your debt and can therefore knock years off your mortgage term. Offsetting is a particularly attractive option for higher rate taxpayers as you do not earn interest on your savings and therefore have no tax to pay on that money.
Although inflation is rising, a number of economists believe interest rates will be cut later in the year because of the weakening economy. Some borrowers may therefore be happy to take a bit of a gamble and go for a variable rate mortgage so that they benefit from lower mortgage payments if interest rates do fall.
HSBC has a two-year discount at 4.99%, with a £2,499 arrangement fee. The deal is available for loans up to 80% of the property's value, although the maximum loan size is £250,000. Because of the high fee and relatively low maximum loan size, HSBC's other two-year discount at 5.49% (mentioned above) is another option worth considering as it may work out to be better value over the two-year term. This will depend on how much you want to borrow.
If you would prefer a longer-term deal, Woolwich has the leading lifetime tracker rate at 5.69%. This is an offset and the fee is £995 and this product is available for loans up to 60%. However, one thing to note with this deal, is that there is an early redemption charge for the first three years - most lifetime trackers are completely penalty free.
Remortgages
If you are looking for a mortgage because your current deal is about to end, it's worth going for a product that includes a free or refunded valuation and free legal fees as this will help keep upfront costs to a minimum.
HSBC's two-year discount at 5.49% includes a free valuation and free legal work for those remortgaging, as does C&G's two-year fix, also at 5.49%. The C&G fix is only available for those with a deposit of 25% or more. If you have less equity than that in your home, Lloyds TSB, which owns C&G, has a two-year fix with exactly the same rate - 5.49% - that is available for loans up to 90%. The fee is the same at £2,094 and it includes freebies on remortgages.
HSBC also offers a competitive lifetime tracker that includes a free valuation and free legal work for those remortgaging. The rate is 0.79 percentage points above Bank rate, giving a current pay rate of 5.79%, and it is available for loans up to 90.
Have your say: Are you glad that mortgage rates are coming down or are you still struggling to find a new home loan because you don't have much equity in your home? And what do you think is going to happen to house prices? Visit our forum and let us know.
Disclaimer: Please note that any rates or deals mentioned in this article were available at the time of writing.
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