How Low Can Rates Go?
Every day sees another mortgage lender drop its rates. Are we at a turning point for the mortgage market?
Who said mortgages are expensive? Well, I did, plenty of times, and it's true that this year has been difficult for borrowers to get competitively priced deals, especially those of us without massive deposits. But things are beginning to change.
Rates have been dropping steadily since the start of July, particularly fixed-rate mortgages, and this week has been no exception. Indeed some lenders are reducing their rates on a weekly basis.
That was the week that was
Abbey has taken a huge share of the mortgage market this year and one reason is because of its aggressive pricing strategy. Having already made a number of price cuts in the last month, the lender is dropping its fixed rates again from Friday by 0.3% and by 0.35% on its large loan range.
In the core range up to 75% LTV (Loan-to-value) it has made the following cuts:
- 2 year fixed down by 0.20% to 5.79%
- 3 year fixed down by 0.15% to 5.79%
- 5 year fixed down by 0.30% to 5.89%
Not to be outdone, Halifax has also announced further cuts this week, stoking the flames of a price war between the two big players.
Halifax reduced 31 of its rates by up to 0.40% across its fixed and tracker products. Plus it has added a range of new products up to 60% LTV, including a two-year fixed rate at 5.59%.
Lloyds TSB and C&G have also cut their rates this week, for the fifth time this month, with two-year fixed rate loans up to 60% looking competitive at 5.54%, if you can afford the fee of £1,995.
More, more, more
Even RBS/ NatWest has joined the rate cutting party, reducing rates by up to 0.35% on fixed and tracker rates. Two and five-year fixed rates now start at 5.89% with a £999 fee up to 75% LTV.
Woolwich has cut its fixed rates by up to 0.28% with three-year fixed rates now starting from 5.69% up to 60% LTV, and 6.19% at 80% LTV.
And Britannia has again chopped two-year deals to just 5.44% up to 75% LTV (with a fee of £999), and just 5.79% with a tiny fee of £499. For those with a small deposit the lender is offering 6.19% up to 90% LTV with a £999 fee.
But the pick of the bunch for me and stealing the big boys' thunder this week hails from the wrong side of the Pennines. Yorkshire Building Society has cut its two-year fixed rate to just 5.29% (it's fallen by a massive 0.90% points since July). The deal is available up to 75% with a fee of £975. Three and five-year fixes are available on the same terms at 5.49%.
Plus the building society's intermediary arm, Accord Mortgages has cut its fixed rates by up to a whopping 0.70% in one fell swoop, with two-year fixes from 5.19% (although only up to 65% LTV and with a 1.5% fee) and three and five-year rates from 5.69% (up to 75% LTV and with a £995 fee).
If you're not sure which deal might be right for you, a mortgage broker might be able to help.
Good times
All in all, there is a fair bit to smile about in the mortgage market at the moment, even though it's still an extremely difficult market and despite the fact that the best deals are still for those with a very large deposit or equity. But the tide is slowly turning and the higher LTV market is beginning to look a little more competitive.
The best fixed rates are back on a par with trackers, and look set to fall further as swap rates (which reflect the cost of fixed rate money for lenders) continue to drop (at time of writing).
Is it too soon to say we are approaching the beginning of the end of the crunch?
Probably. If there had been a surprise rate cut today I might have started talking about green shoots and new horizons. But not quite yet.
Editor's note: Also take a look at Market Harborough Building Society's new 2-year fixed-rate mortgage. It's a 5.75% deal with an attractively low £595 arrangement fee.
Most mortgage brokers can't offer you this deal but we have an exclusive Fool hotline for this mortgage. Call 0800 953 0609 and a broker can help you decide whether this is the right deal for you.
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Comments
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To HChimpearwicker,[br/][br/]Without wishing to monopolise the post, you are correct of course in saying rates were well into double digits in the past. But wages are pathetic outside London (the last place on the planet I'd want to live) and it is the prices which are the problem.[br/]My parents' modest detached in the Midlands cost around 8000 pounds n the early 70s. That was about three years wages for my Dad. Now, to buy the place would cost me about 12 years wages, even with current "low" rates.
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A further point worth making, The press yesterday said first timers had fallen by half (well, 48 percent) in 2008 over 2007. [br/][br/]I wonder how many ill-educated Brits out there will think all is hunky dory when the financial establishment rejoices in an eventual similar rise next year or in 2010? [br/][br/]The figure given was 17000 in 2008 which means some 34000 in 2007. [br/][br/]But of course a 48 pc rise on the 17000 would only mean 25,500, well off the initial 34000.[br/][br/](I know, it's obvious - but you'd be surprised how many people fall for such statistical tricks and are incapable of thinking beyond the headline.)
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Main point is - prices are only "falling" for those few who are selling at this time. Most if they have any sense will sit tight - or indeed will trade up knowing they can do so on the cheap.[br/][br/]But the worst thing is 'tis our assets which are on the slide not owing to intrinsic value of a property asset but greed and incompetence in the banking sector and their consequent inability to lend.
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10 September 2008