The Mortgage Mythbuster
Christina Jordan reckons you shouldn't listen to the mortgage doom-mongers.
If you believe everything you read in the consumer press or watch on the news you might be forgiven for thinking the UK mortgage and housing markets are in total meltdown.
The apparent situation is that house prices are crashing and there are barely any mortgages available. To make matters worse, poor first-time buyers need to find a whopping 25% deposit in order to be considered for a homeloan - don't they?
Well, no, they don't. Like a lot of the scare stories about mortgages these are exaggerations, headline-grabbers and examples of downright doom-mongering.
Myth number 1 There are few mortgages available to first-time buyers and you need a 25% deposit to get one
The number of mortgages available has dropped by at least two thirds in the last six months, so choice is certainly more limited for borrowers.
But latest figures show that there are around 4,000 mortgage products on the market and almost half of these allow borrowers to get a loan of 90% of the property's value (i.e. only put down a 10% deposit). A significant 12% of these mortgages are available up to 95% loan to value.
Some lenders have indeed made their best deals available to those with a 25% deposit and the higher your LTV the more expensive your rate.
However, this has always been the case. In the last six months some of the boundaries have shifted and having a large deposit is more beneficial than ever, but the fact remains that if you have a 5% deposit you have ample products to choose from.
Myth number 2 Mortgage rates are unaffordable
Rates have risen over the last year, and average two-year deals recently hit their highest level since 2000 -- 6.64%. Some lenders are actually offering cheaper Standard Variable Rates(SVRs) than their two year deals - a topsy-turvy situation that has led to Halifax, C&G and others having to restrict their SVR deals to existing customers only.
Even worse is the fact that mortgage rates could go up further, following the Bank of England's recent announcement that inflation could rise higher than it expected. This news had a knock-on effect on the London Interbank Offered Rate (LIBOR) which is the strongest indicator of lenders' actual rates, and which shot up last week.
But there is good news. Last week Nationwide cut its fixed rates to 5.85%, and Abbey made a similar move. These first green shoots suggest that the worst of price rises may be over. In addition, and despite the recent inflation figures, many industry experts predict at least one further cut in Base Rate this year.
In fact, 35% of borrowers are on variable tracker rates (according to the Council of Mortgage Lenders) and have therefore already seen their rates drop by 0.50% in the last three months. Plus, any borrower on a fixed rate that is not up for renewal this year has seen no change to their pay rate at all.
And remember that rates are historically low -- only 10 years ago the Base Rate was 7.5% -- 50% higher than its current level. During the last recession it was 150% higher, at just under 15%.
Myth number 3 House prices are crashing
This month Halifax recorded a year-on-year fall in average house prices - a drop of less than 1%. But the country's largest lender pointed out that the national figure masks regional variances. Many areas (such as Greater London, East Anglia, and Scotland) have continued to see price rises this year and Halifax predicts they could continue to increase.
The average UK house price rose 190% in the 10 years to last August, so a 1% or even 10% fall is a correction, rather than a long-term problem. And since the average first-time buyer put down a 20% deposit last year the threat of widespread negative equity is limited.
Ultimately we have an undersupply of housing, record employment and a massive demand for property. The current lack of sufficient mortgage funding is causing real problems but when the mortgage market turns a corner, potential buyers will surely be waiting in the wings.
I know that some other Foolish writers are less sanguine, but in my view, the mortgage market is not in a desperate or hopeless situation. Nor are the majority of borrowers, whether first-time buyers or remortgagors.
Borrowers still have choices to make, albeit more limited ones. In this environment, getting good advice is essential, and speaking to a whole-of-market mortgage adviser could pay dividends, especially with products changing on a daily basis.
Whether you go to a broker or do it yourself, just don't be put off completely. There are plenty of products out there and plenty of people willing to help you find the right one.
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