Mortgage rate battle could benefit first-time buyers
While figures released last week revealed the widening gap between house prices and wages in Plymouth, lending to people buying a new home jumped by 8 per cent last month.
The Council of Mortgage Lenders has just released the latest figures that show a total of £12.7 billion in loans was agreed in July, outstripping July 2011’s total by 2 per cent.
CML market and data analyst Caroline Purdey said that major events like the Olympics and Diamond Jubilee were having an impact on interpreting trends in the market. She said: "Gross mortgage lending showed an 8 per cent increase from last month, continuing the see-saw pattern seen throughout this year, albeit against a broadly flat market.
"Interpretation of recent trends continues to be challenged by one-off effects. We look forward to the September figures when the distorting effects of the Diamond Jubilee and the Olympics should largely have worked their way through.”
Figures released by the National Housing Federation last week will not have cheered people hoping to get a foot on the Plymouth property ladder as they revealed the deposit needed to secure a mortgage has rocketed by 420 per cent.
The Office of National Statistics has also said the number of young adults still living with their parents has risen by 20 per cent over the past 15 years, reaching 3 million across the country last year. In Plymouth, 8,000 people aged 20 to 34 still live at home, with the report pointing to rising house prices as a factor.
But money experts at MoneySupermarket, who have been keeping a close watch on mortgage deals, say there could be hope for first-time buyers and others as the Bank of England’s Funding for Lending scheme has sparked a battle among lenders to produce the lowest fixed rate deals in history.
Funding for Lending, launched at the start of this month, is aiming to make £80 billion worth of extra loans available to personal and commercial borrowers through banks and building societies.
Here is MoneySupermarket’s guide to the new deals currently on offer:
The latest action: HSBC threw down the gauntlet in the price war with its 2.99 per cent five-year fix, marking the cheapest mortgage rate over that timeframe in history. To benefit from the deal, applicants needed a 40 per cent deposit or that level in existing equity. The deal has since been withdrawn. HSBC also unveiled the lowest ever seven-year fix on record, priced at 3.99 per cent for the same down-payment.
Rival banking giant Santander soon retaliated by slashing the rate of its five-year fix down to an identical 2.99 per cent, also for borrowers with a 40 per cent deposit. However, to qualify applicants must have held a current account with the bank for at least 30 days at the time of application - or have a mortgage with the bank already and be moving home.
Unsurprisingly, both banks charge relatively hefty fees on these mortgages of £1,499 and £1,495 respectively.
Not to be outdone, NatWest then undercut both HSBC and Santander with a five-year fix of 2.95 per cent (also with a 40 per cent deposit) setting yet another new record. The fee on this deal, however, is an even heftier £2,495 but, according to Ray Boulger at mortgage broker John Charcol, it's worth paying if you are taking a larger mortgage.
He said: "NatWest's arrangement fee is well above average at £2,495, which is obviously to subsidise the rate, but even so this still represents fantastic value for mortgages of at least £100,000." He adds that, in addition, anyone remortgaging will qualify for a free valuation and free legal fees.
For loans of less than £100,000, it may be worth paying a higher rate and a lower fee. For example, Nationwide is offering a five-year fix priced at 3.39 per cent with a fee of only £499 if you are buying a new property - and just £299 if you are buying a home for the first time. For remortgagers, however, the fee is higher at £999.
Nevertheless, so long as your mortgage is not more than 60 per cent of the value of your home (even though this particular deal is available up to 70 per cent, it could offer better value than the sub-3 per cent rates simply because of the lower fee, according to Ray Boulger.
The other side of fixing: The downside to a fixed rate mortgage is that you will be tied as for as long as the deal lasts. You should be able to “port” your mortgage to a new property during this time (so long as the lender deems it adequate security for the loan), but if you want to sell up and pay off the debt, you will need to fork out early repayment charges, which can run into thousands of pounds.
So while a five-year fixed rate deal will provide security and a guaranteed low payment, on the flipside, it will cost you some flexibility.
Shorter-term fixed deals: There are plenty of shorter-term fixed rate deals that have come down in price too. Next to wade into the fixed rate mortgage war, for example, was Nationwide, which slashed the rate on its Flexclusive four-year fix down to a market-leading 2.89 per cent for loans up to 60 per cent of the property value.
The deal comes with a £900 product fee which is reduced to £400 if you are a first-time buyer. However, like Santander, the mortgage is only available to customers who hold the lender's FlexAccount as their main bank account.
If you are looking an even shorter two-year fix, prices in that camp have dropped too. Barclays has lowered its two-year fixed rate to 3.29 per cent with no application fee - taking the market-leading slot for loans that require a 30 per cent deposit.
Virgin Money has also launched a new two-year mortgage fixed at 2.99 per cent with a £995 product fee if you have a larger 40 per cent deposit. Alternatively you could opt for the 3.39 per cent deal and side-step the fee. Customers remortgaging from another lender will benefit from free standard legal services and a free basic valuation.
Lower deposits: Rates are falling on deals for borrowers with smaller deposits. Halifax has slashed the cost of its two-year fixes by 0.2 per cent and is now offering applicants with a 20 per cent deposit a rate of 4.34 per cent if they go to direct to the branch (rates from intermediaries are higher), while borrowers with a 15 per cent deposit will pay a fixed rate of 4.64 per cent for two years.
Both deals come with a £995 product fee - though first-time buyers won't need to pay this and will even receive £1,000 cashback on completion of the deal.
HSBC has also cut its two-year fixed rate deal by 0.2 per cent down to 4.29 per cent for borrowers with a 10 per cent deposit - and reduced its five-year fixes by as much as 0.5 per cent.
Even if you can only lay your hands on a 5 per cent deposit, fixed rates are still cheaper than they were. Santander has cut its three-year fixed rate deal at this borrowing level down to a market-leading 4.99 per cent, while its five and seven-year deals have been slashed to 5.29 per cent in return for the same deposit. Both come with a low fee of £99 plus free valuation and £250 cashback on completion.
The mortgages, which are available only through Abbey Intermediaries and not on price comparison websites, are part of the Government's NewBuy scheme which is designed to help first-time buyers get on the housing ladder.
The difference of just a few percentage points on a loan big enough to buy a house can make a world of difference to your pocket so, even though fixed rates are tumbling, it's still important to do your homework. MoneySupermarket's mortgage channel can help you shop around and make sure you are up-to-date.
Please note: Any rates or deals mentioned in this article were available at the time of writing.