Rates are up… rates are down… rates are up. Kay Hill looks at the constantly changing mortgage market and notes some new initiatives on the scene.
A few weeks ago, it looked like it was time for a cheering review of the way mortgage rates were reducing and borrowing was becoming more accessible. But the combination of international events and home politics suddenly meant that the future became impossible to predict.
Just before the Budget, David Hollingworth, associate director at L&C Mortgages, said. “The mortgage market has seen rates falling in recent months but that may be coming to an abrupt halt. Fixed rate pricing depends on what the market anticipates may happen to interest rates; and uncertainty over the Budget, mixed messages from the Bank of England and global unrest is pushing costs back up for lenders. Borrowers may have been lulled into a false sense of security with round after round of rate improvements, but this is a reminder that things can change.”
At the same time, Moneyfacts found that average mortgage rates for the most popular fixed rate terms had increased, after a series of drops, with the average two-year deal up from 5.36% to 5.37% and five-year deals up from 5.05% to 5.06%. But behind those averages is a stream of lenders changing their products – some, such as Coventry Building Society, Santander and TSB putting rates up, while others, such as Buckinghamshire Building Society and Yorkshire Building Society, reducing them.
INTEREST RATES
Products aimed at first time buyers seem most resilient – reflecting lenders’ enthusiasm for new business. Buckinghamshire Building Society’s Prime 95, offering 95% LTV fixed over five years, has reduced from 5.59% to 5.29% while Yorkshire Building Society’s £5K Deposit Mortgage, a 95% loan for first time buyers, has also gone down from 6.24% to 5.79%. Ben Merritt, director of mortgages at Yorkshire Building Society, said, “Our research suggests products of this kind are vital to renew the faith of would be first time buyers by showing them that homeownership need not be out of reach.”
With mortgage rates so volatile, shopping around is vital. MoneySavingExpert offers a comparison site that lists mortgages available direct and through brokers, enabling you to get a good idea of what is on offer, while an independent mortgage broker will also have access to detailed information about each lender’s criteria. This can be particularly important if you are self-employed, have a less than perfect credit record or are looking at anon-standard property.
LARGER MULTIPLES
A number of lenders have increased the amount they will loan, with some now offering to lend up to six times household income. Large multiples were commonplace before the 2008 credit crunch, but since then, three or four times household income has been as far as most lenders were willing to go.
In recent weeks, however, the landscape has changed, with Britain’s largest building society, Nationwide, now offering loans of six times salary on up to a 95% loan-to-value (LTV) as part of its Helping Hand range of products. The loans are fixed for five or 10 years, with 95% LTV rates of 5.04% fixed for five years and 5.9% for 10 years with no
fee, or 4.99% for five years and 5.79% for 10 years with a £999 fee. You must be a first time buyer, not self-employed, with a minimum income of £30,000 (sole applicant) or £50,000 household income. It cannot be used with Deposit Unlock, First Homes or shared ownership, and there’s a maximum LTV of 75% on new build flats and 90% on new build houses. An early repayment charge applies throughout the mortgage term.
Nationwide isn’t the only company lending larger multiples – Virgin Money for Intermediaries offers 5.5 times income over £75,000 on up to 85% LTV, and both Lloyds and Halifax offer First-Time Buyer Boost, lending 5.5 times income up to a 90% LTV with a minimum household income of £50,000. West Brom for Intermediaries will loan up to 5.75 times income for applicants earning over £75,000, while Kensington Mortgages and Teachers Building Society both offer up to six times income for higher earners. April Mortgages and Perenna Mortgages, both relatively new to the UK, loan up to six times income. At April, a 15-year fix on up to 85% LTV is 5.95%, while Perenna offers a new build 95% LTV mortgage fixed for 10 years at 6.26%. Most exclude the self-employed.
NEW PRODUCTS
Lenders are working in other ways to make homeownership achievable. Skipton Building Society, for example, has extended its Track Record Mortgage, a 100% mortgage aimed at renters, to include shared ownership and new build apartments, and the maximum term has increased. The mortgage, which would previously loan an amount with repayments the same as the borrower’s rent, will also now lend 120% of
monthly rent. Jen Lloyd, Head of Mortgage Products at Skipton said, “By increasing the maximum term from 35 to 40 years, allowing new build flats, introducing a shared ownership option, and adopting a more flexible approach to affordability, we’re removing some of the barriers people faced when wanting to use Track Record.”
Also with a view to helping first time buyers, Suffolk Building Society has announced it will welcome joint borrower sole proprietor applications, allowing up to four people from two households to borrow from the society with one or two individuals on the title deeds
– a great way for parents to help their children without having to gift them money. Meanwhile, Hinckley & Rugby Building Society has launched a fixed-rate mortgage for borrowers with unusual circumstances, including irregular income, credit issues, self-employment, or non-standard properties. Specialist 5-Year Fixed, up to 90% LTV, is .15%, with a £999 product fee.
LOOKING AHEAD
The Bank of England base rate, currently 5%, is still predicted to be cut when the Monetary Policy Committee meets on 7 November, following a drop in inflation to 1.7%. Some experts were predicting a second cut at the final MPC meeting of the year on 19 December, but this is less likely following the Budget. With underlying financial uncertainty remaining high, lenders may not reduce mortgage interest rates in line with the base rate, so if you are ready to buy now it makes sense to shop around and get the best deal you can, rather than wait in the hopes of a dramatic drop in mortgage costs what may not happen
Kay Hill
Kay has been a professional journalist since her teens, working for local and regional newspapers, magazines and now websites as well. Kay work across a number of fields, including architecture, design, personal finance and the housing market – Kay enjoys making the complicated things in life a little easier to understand.As a consultant for PR company Building Relations, Kay has written for developers including Barratt London, Dandara, MTVH and Annington.
Kay enjoys the beauty of language, the structure of grammar and the process of condensing thousands of words of research and interviews into 1,200 carefully chosen words that will leave the reader a little more informed than when they started.
