Getting a Decent Mortgage Deal Is Becoming Easier
Mortgages Becoming Easier To Obtain
This has mainly revolved around edging down certain loan-to-value thresholds – in other words, giving those with smaller deposits access to the best deals.
The house price effect…
However, while this is good news for those who had been struggling to secure a decent mortgage, it may not be as simple as it sounds. A loan to value is effectively the proportion of your property value that has a loan secured against it. The smaller this percentage figure, the lower risk a lender perceives you to be, and cheaper the rate you will be offered.
A loan to value hinges on more than just how much of the mortgage debt you have managed to pay off. The other half of the equation is the market value of your home. And this, of course, can go down as well as up. Having slumped by as much as 25% after the credit crunch, average house prices started to pick up again midway through last year and – up until recently – had been steadily climbing.
Last month, however, marked the first time for the best part of a year that house prices slipped, according to both of the most recognised house price indices. Nationwide reported average house price falls of 1% during February, while Halifax returned falls of 1.5%, taking average house price down to £161,320 and £166,587 respectively.
Oiling the lending wheels
But, rather than cause for alarm, one month of house price falls is probably more of an indicator of the beginnings of a static housing market for 2010 – something that most experts are forecasting. And meanwhile, lenders have been increasingly opting to ‘meet homeowners in the middle’ by loosening the purse strings.
Currently, however, this favours borrowers who can still lay their hands on a 15% deposit. For example, First Direct recently launched a market-leading tracker mortgage available at 85% loan to value. The rate is pegged at 3.49% above base rate for the life of the loan. This means the current pay rate is 3.99%. There is also a £495 fee.
Mortgage expert at the bank, Jimmy Kelly, said: “We want to help people who can’t quite reach a 20% deposit for their new mortgage but have more than 10% saved – as there are few products in this category.”
The number is growing though. Last week Yorkshire Building Society reduced the rate of its two-year tracker – also available at 85% loan to value – by a significant 0.60%. The new lower rate of 3.79% will save a customer with a £150,000 repayment mortgage £1,200 in interest payments over the two-year term when compared to the previous rate of 4.39%, says the society. The fee is also reasonable at £495.
Fortune favours the equity rich
However, while rumblings of movement may be starting to occur in the 80% and 85% loan-to-value brackets, the very cheapest deals are still reserved for those with maximum deposits.
Hannah-Mercedes Skenfield, moneysupermarket.com’s mortgage manager, said: “It’s true we have seen signs of lenders relaxing their criteria but it’s still within fairly conservative loan to value parameters. Borrowers with only a 10% deposit will still have to pay a lot more and, if you have a deposit of less than this, it’s still the case that you won’t qualify for any mortgage at all.”
Top deals at your loan to value
So what are the best deals for your own loan to value as it stands? If you are lucky enough to have the full 40% deposit, that most lenders set their best stock by, look at Yorkshire Building Society’s two-year fix priced at 3.09%. You’ll need to factor in the above-average £1,196 fee though.
Borrowers who can afford to leave themselves open to a variable deal may be interested in HSBC’s new two-year discount. Available from Monday 15 March, the deal is payable at just 1.99% for customers with a 40% deposit and comes with a booking fee of £999.
You will only need a 35% deposit to qualify for the best tracker, which comes courtesy of First Direct. The deal is pegged at 1.89% above base resulting in a current pay rate of 2.39% – and, best of all, comes with a relatively small £499 fee.
If you can still muster a 25% deposit post the housing crash, the Co-operative Bank is offering a 3.19% fix until June 2012 with a £999 fee, while Market Harborough Building Society has the best tracker priced at 2.48% for two years. However, watch out for the whopping £1,835 fee attached to this deal.
Borrowers with a 15% deposit are the group that benefit most from relaxed criteria, now having both First Direct’s 3.99% lifetime tracker and Yorkshire’s 3.79% fixed rate deals at their disposal.
Sadly, borrowers with a 10% deposit will still pay disproportionately more for their mortgage deal. The best rate available on fixed rate terms is a five-year deal from Yorkshire Bank payable at 6.69% with a £499 fee. On a variable basis Lloyds TSB is offering a tracker for the life of the loan currently payable at 5.49% – though the fee is a hefty £1,494.
Silver lining…
But at least if house prices remain in freeze frame for 2010, this year’s first-timers can finally throw in the towel on the game of ‘house price catch up’ when sensibly trying to save for the biggest deposit possible.
And existing homeowners should look to take advantage of the low interest rate environment and overpay on their mortgage if at all possible. Given you can’t rely on house price increases to boost the amount of equity you have in your home, paying down your debt more quickly is the best alternative.