30 must-have mortgages, whatever your deposit

Mortgage lending is up and rates are keen, but they might not stay that way!

In the property-obsessed UK it only takes a few specks of good news for us to get carried away. Potential first-time buyers start thinking they’d better buy now before prices slip away from them, while homeowners come over all smug about their increasing equity.

But a few shaky house price reports (like we’ve seen recently) and you’d think the sky was about to cave in, with ‘price crash’ headlines and doom mongers saying they told us so, as I explained last week in Don’t panic over falling house prices.

Of course I blame the media!

It’s becoming the same with mortgages -- a monthly dip in lending is deemed catastrophic, when there could be another explanation, such as snow, the General Election or just the fact that a figure is being compared to a strong previous month.

All this means we can’t let ourselves get carried away with this week’s report that mortgage lending increased by a significant 15% in June.

No boom here

According to the Council of Mortgage Lenders £13.1bn was lent last month compared to £11.4bn in May. This was also up 7% on the £12.2bn lent last June (though last June was pretty weak, proving the point about relativity!).

Even the smoother quarterly stats are cheery. Lending in the second quarter of this year (£35bn) was up 17% from Q1 and 7% from Q2 last year.

So does this mean the mortgage market is back on track?

Not on your nelly.

The CML is at pains to point out that the increased lending in June is still at low levels when you look beyond the last dismal few years. 

It says that while there are positive indicators, like more properties coming onto the market since HIPs were scrapped -- which could lead to more transactions -- access to credit still remains constrained. And ultimately this means it is more likely transactions will stay subdued.

The credit crunch has not completely disappeared then! 

In fact, proposed new regulations included in the Financial Service Authority’s massive Mortgage Market Review could make life even harder for lenders -- and therefore for borrowers.

Less to lend

In a nutshell, the regulatory burden on lenders will be increased, meaning they have less money to lend, and less flexibility over how they lend it. The idea is that it should make borrowing safer for us, but the tighter the industry is bound in red tape, the more it costs lenders to operate. This means there is less to lend and mortgages will become less competitive. The CML goes as far as to suggest that this could have long-term implications on homeownership levels in the UK.

Serious stuff.

This lack of mortgage funding is already a problem, and it could get worse. Just last week the Bank of England’s Credit Conditions survey showed that lenders expect a reduction in the amount being made available to lend in the coming three months.

It’s not an exaggeration to say that this looming lack of funding, especially next year when Government support schemes are set to expire, is probably the biggest threat to the mortgage market.

And it’s not just a lack of money to lend that is causing concern. Government spending cuts will have an inevitable impact on the housing market with job losses and pay freezes forcing many families to put off plans to buy.

However, such an austere Budget has one silver lining for the mortgage market. It is more likely that the Bank of England will keep interest rates low for longer to support the economy through the painful cuts -- and this keeps mortgage repayments low for many borrowers. Phew!

What about rates now?

Fixed rates have fallen during 2010 and now stand at their lowest level in seven years. This is partly due to swap rates falling (which influence the cost of funding fixed rate mortgages for lenders), and partly because they have been pulling out all the stops to persuade us to move off low standard variable rates onto a new deal.

Whatever the reasons, it’s good news for those consumers who are looking for the safety of a fix in anticipation of possible rate rises next year.

If you’d rather take your chances on interest rates, average trackers are even lower. Two-year deals average 3.56%, says Moneyfacts but the lowest start at 2.19%. Term trackers average 3.99%, but best buys are available at 2.29% (see table below).

Either way, it’s still the case that the size of your deposit is key to how competitive a mortgage deal you can get. With just 10% there is not much available and rates are expensive. But the more you can put down the more deals will become available to you, and at better prices.

Below are some of my favourite mortgages, whatever size of deposit you have: 

30% deposit or more

20% -29% deposit

10-19% deposit

More: The most affordable UK cities to rent! | Getting a mortgage is about to get tougher