Great news for borrowers - competition in the mortgage market is sparking price cuts. But can it last?
They say a week is a long time in politics. It's even longer in the current UK mortgage market, where competition has well and truly returned to lending and there are price cuts aplenty.
Since Christmas mortgage lenders have been chopping their fixed rates, shaving the cost of their tracker deals and generally becoming more consumer friendly, after a mammoth mortgage freeze that saw many borrowers shut out of the market completely.
Now that freeze has thawed, not only for low-risk borrowers, who have always been welcomed by the lenders with enough funds to really do business, but also those borrowers considered high risk -- such as those with small deposits.
Times are definitely getting better for mortgage borrowers.
Rates falling
In fact, according to recent research* average mortgage rates for borrowers with a 10% deposit have fallen by a massive third in the last three months, from 7% in November to 5.3% now. This means that borrowers taking out a deal now at 90% loan-to-value (LTV) would save £160 a month compared to those who got their mortgage in November.
Why the drop?
One reason is the fact that more lenders are now offering tracker deals to those with just 10% upfront. This was not the case back in November when only fixed-rate deals were on offer to customers with small deposits. This makes a difference because trackers are currently priced below fixed rates, whatever your deposit. Their introduction at 90% LTV brings down the average mortgage rate at 90%.
Another reason is simply that there are genuinely better deals across the board than there were three months ago, and particularly for those with a small deposit.
This is partly because lenders are more relaxed about the housing market, and now believe that the assets they are securing their loans against (our homes) are less likely to drop in value. Because of this they are more willing to lend to higher risk borrowers.
- Follow the hints and tips in our goal: Cut your mortgage costs and pay off your mortgage early
The bigger the better
However, it's not all rosy for those who can't muster a large deposit. Despite the rate reductions, borrowers on the best buy deals at 90% will still pay more than twice the interest rate of those borrowing a more modest 60% -- who pay an average 2.58%.
While lenders may be a bit more relaxed about house prices and the chance of customers falling into negative equity, they are still very aware that the more you can put down upfront the lower risk you are.
In addition, it is literally more expensive for them to lend at high loan-to-value ratios as the regulator requires them to hold more money aside in reserve (just in case). So they have to charge more for it.
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Shiny and new
It's great to see lenders offering more deals at high or low LTV ratios and new announcements are currently being made every day. This week for example Yorkshire Building Society, which recently stated its intention to increase its market share, launched a new range of mortgages up to 85% LTV.
The deals are all fixed and exclusive to first-time buyers. Best of all they come with no arrangement fees, no valuation fees and no legal fees, and a handy £500 cashback on completion. Plus the rates aren't bad either, with a two-year fix at 5.39%, a three-year fix at 5.69% and a five-year fix at 5.89%.
They've not been the only lender parading their new deals this week:
- HSBC has launched a new range of mortgages including a super-low five-year fixed rate at just 4.64%. The fee is £999 and the deal is available up to 60% LTV, so you need a massive deposit to qualify.
- Norwich & Peterborough Building Society launched a range of three-year discounted variable rates, replacing its term discounted products. The deals are available up to 75% LTV and come with a modest £695 fee. Rates start at 2.95%.
- Northern Rock also chopped some mortgage rates this week. Its two-year fixed rates now start at 3.59% and 2-year trackers from 2.65%. These deals are part of the lender's new Everyday range, which offer more limited flexibility than its existing mortgages (which are fully flexible).
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The Post Office slashed its rates for the second time in a month and expanded its range to include 75% LTV deals. The tracker and fixed rate deals, available from branches, start at 2.99% and come with a modest fee of £599.
Best buys
Below is a round-up of some of the best purchase deals currently available, whatever your deposit, based on the total cost over the first two years.
All assume a property price of £250,000 and a 25-year repayment mortgage.
10% deposit, getting a mortgage of £225,000 on a property costing £250,000
HSBC term tracker rate at 4.99% (Base+4.49) with no fee
Abbey two-year tracker rate at 5.49% (Base+4.99) with a £995 fee
Abbey five-year fixed rate at 6.69% with a £995 fee
15% deposit, getting a mortgage of £212,500 on a property costing £250,000
Leek United BS two-year discounted rate at 2.95% with a £195 fee
HSBC term tracker rate at 4.99% (Base+4.49) with no fee
Leek United two-year fixed rate at 4.79% with a £195 fee
20% deposit, getting a mortgage of £200,000 on a property costing £250,000
Leek United BS two-year discounted rate at 2.95% with a £195 fee
Nottingham BS three-year tracker rate at 3.99% (Base+3.49) with a £795 fee
Leek United two-year fixed rate at 4.79% with a £195 fee
25% deposit, getting a mortgage of £187,500 on a property costing £250,000
ING Direct two-year tracker rate at 2.64% (Base+2.14) with a £795 fee
ING Direct term tracker rate at 2.89% (Base+2.39) with a £695 fee
First Direct 2-year fixed rate at 3.29% with a £998 fee
30% deposit, getting a mortgage of £175,000 on a property costing £250,000
Abbey three-year tracker rate at 2.54% (Base+2.04) with a £995 fee
ING Direct term tracker rate at 2.89% (Base+2.39) with a £695 fee
First Direct two-year fixed rate at 3.29% with a £998 fee
40% deposit, getting a mortgage of £150,000 on a property costing £250,000
HSBC two-year discounted rate at 2.39% with a £999 fee
First Direct term tracker rate at 2.89% (Base+2.39) with no fee
Yorkshire BS two-year fixed rate at 3.39% with a £495 fee
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