Halifax has launched a fee-free, seven-year fixed rate mortgage at 5.89%. And as it only requires a 10% deposit, it's sure to be popular with first-time buyers.
In an effort to lend more to first-time buyers, Halifax has launched a mortgage with a fixed rate of 5.89% a year for seven years. Unusually, this home loan has no upfront product fee and, even better, includes £500 cashback payable on completion.
By launching this no-fee loan, Halifax hopes to entice more buyers to take their first steps up the property ladder.
Seven-year fixes for first-timers
The market for long-term fixed rates for first-time buyers is a very thin one. Indeed, first-timer loans lasting beyond five years are dominated by just three lenders: Chelsea BS (owned by Yorkshire BS), Skipton BS and HSBC.
Here are three of the top loans in this category, one from each of these three lenders, plus Halifax's new deal:
|
Lender |
Fixed rate |
Product fee |
Minimum deposit |
|
4.89% fixed to 31/12/2019 |
£599 |
10% |
|
|
4.89% fixed to 30/09/2019 |
£995 |
15% |
|
|
5.09% fixed to 30/11/2019 |
£395 |
15% |
|
|
5.89% fixed for seven years |
£500 cashback |
10% |
As you can see, buyers with a 10% deposit can get a seven-year fix from HSBC at 4.89% a year. While this rate is a whole percentage point lower than Halifax's fix of 5.89%, HSBC's loan costs £1,099 more upfront. This is due to HSBC's fee of £599 compared to Halifax's cashback of £500.
Likewise, the seven-year fixed rates from Skipton BS and Chelsea BS are lower than Halifax's, at 4.89% and 5.09% respectively. Again, these are more expensive upfront, costing £1,495 and £895 more than Halifax's deal.
In theory, choosing Halifax's higher rate over the three loans above could pay off, if saving on fees more than offsets higher monthly repayments. However, this would only be the case for very small mortgages (below £16,000 to £22,000, depending on the loan chosen).
So in this category, it's obvious to me that HSBC's low-rate loan is the clear winner, relegating Halifax to fourth!
Halifax's help for buyers
Despite recent improvements in the mortgage market, first-time buyers must still clear major hurdles before they can join the property-owning masses. This is why the Government launched the £80 billion Funding for Lending scheme, aimed at improving the flow of cheap loans to UK home buyers and British businesses.
Indeed, Halifax admits that its new long-term, fixed-rate deal has been made possible as a result of its participation in this new coalition-backed initiative. In effect, these new loans for first-time buyers are being sponsored and subsidised by taxpayers, so as to stimulate the UK housing market.
What's more, Lloyds Banking Group (Halifax's parent company) is firmly committed to lending to first-time buyers, promising to lend £5 billion to new homeowners during 2012. Lloyds has earmarked a tenth of this sum (£500 million) to lend at highly competitive rates -- such as the loan above.
[SPOTLIGHT]In the first half of this year, Lloyds claims to have helped over 25,000 buyers to grab the first rung of the property ladder, while it expects to welcome another 25,000 new borrowers from July to December 2012.
Propping up property prices
Halifax is clearly committed to supporting and stimulating Britain's stagnant property market.
In fact, the lender provides one in three mortgages for affordable housing schemes, including shared ownership and shared equity. In addition, it provides more than a quarter (25%) of funding for the NewBuy scheme and works with 23 housebuilders -- more than any other lender.
Furthermore, Halifax has cut its rates across the board. Its latest rate reductions range from 0.2% for buyers with 40% deposits seeking fixed rates to more modest cuts of between 0.05% and 0.15% on its range of tracker mortgages.
Beware the 'second storm'
Despite this good news for first-time buyers, I worry that Halifax and other mortgage lenders are merely 'rearranging deckchairs on the Titanic', as the anxious saying goes.
Following the property crash of 2007-09, prices have recovered gradually in many parts of the UK. As a result, sale prices have almost returned to their pre-crash peaks in several areas. In 'Fortress London' and certain parts of the Home Counties, property prices have soared past their 2007 watermarks to record new highs.
However, I am far from convinced that all this well-meaning activity to support the housing market will succeed. The eurozone's toxic debt problems have not gone away, economies around the world are slowing, and the UK economy itself is in pretty awful shape.
What's more, with property transactions still running at half their pre-crash peaks, our national debt rising by £8 billion a month, and the UK economy in recession struggling to grow again, the current stability in house prices strikes me as a 'phoney war'. That's why I expect a 'second storm' to envelop UK house prices, sending them once again below their 2009 lows.
Therefore, I would urge first-time buyers not to rush into purchasing a home right now. As I see it, we are in the 'eye of the hurricane' and this is only the 'calm before the second storm'. If I'm right, borrowers who rush to buy now could lose their deposits and even suffer negative equity (when homes are worth less than the mortgages secured on them).
EDITOR'S NOTE
Since this article was published, Halifax has made the mortgage available up to 95% LTV as part of the NewBuy scheme.
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At lovemoney.com, you can research all the best deals yourself using our online mortgage service, or speak directly to a whole-of-market, fee-free lovemoney.com broker. Call 0800 804 8045 or email mortgages@lovemoney.com for more help.
This article aims to give information, not advice. Always do your own research and/or seek out advice from an FSA-regulated broker (such as one of our brokers here at lovemoney.com), before acting on anything contained in this article.
Finally, we tend to only give the initial rate of a deal in our articles, but any deal which lasts for a shorter period than your mortgage term may revert to the lender's standard variable rate or a tracker rate when the deal ends. Before you take out a deal, you should always try to find out from your lender what its standard variable rate is and how it will be determined in the future. Make sure you take all this information into account when comparing different deals.
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