Mortgages |
|
Your Money > Mortgages Articles > Mortgages: What is going on?
|
|
By Sarah Modlock
It doesn't take a rocket scientist to work out that with interest rates at a historic low of 0.5% there is only one way they can go. So what next for first time buyers and existing mortgage holders? Fix? Cap? Track? Many borrowers are wondering if it's even possible to get a deal at all in this climate. Last week, figures from Halifax - Britain's biggest lender - showed that house prices rose 2.6% in May to an average £158,565 - their fastest rate for seven years. Numbers from Nationwide showed prices were up 1.2% in the same month. It is the first time both indexes have risen together since August 2007. But the news is yet to filter through to lenders who are slashing and burning their mortgage product ranges and rates, leaving borrowers with less choice than ever. Woolwich, Lloyds and RBS have all withdrawn loans for purchases over the last month and have not replaced them. Gone is the Lloyds five-year fix at 6.59% for borrowers with a 10% deposit and its two-year fixes at 4.49% and 5.89% for those with a deposit of 25% and 15% respectively. Other lenders are waving attractive rates and deals around but not actually letting customers have them. A Sunday Times investigation found that in April, HSBC cut rates for borrowers with deposits of just 10% but admitted last week that of the 12,000 applications above 75% of the property purchase price, only one in five borrowers received funding. Even if you can stump up a hefty deposit (we're talking 30% to 40%) you are not guaranteed a happy ending. Large loans or applications for interest-only mortgages tend to attract a negative outcome at the moment. Of course this is double maddening if you have paid an 'arrangement fee' and then don't get it back. None of this is helping the constipated mortgage and property markets. Brokers surveyed by the Sunday Times are finding a higher number of applications being turned down. Savills Private Finance reported about 30% were being rejected, against 20% a year ago. John Charcol said lenders had been surprised by the strength of the market and were using up mortgage funding faster than anticipated. Estate agents added that buyers were interested in bargains but transactions were falling through as they failed to secure funding. Nevertheless, it's a good sign that higher loan-to-value (LTV) ratio mortgages are starting to trickle back onto the market. Britannia, which recently merged with the Co-Operative Bank, has announced new 90% loans, including a two-year fix with an interest rate of 5.09% and a fee of £599. It is also offering a three-year fixed-rate deal with a rate of 5.59%. Nationwide's expanded product range include loans of up to 95% LTV but these are for existing borrowers, leaving first time buyers out in the cold. Its two-year fixed-rate deal with an interest rate of 2.79% is for loans of up to £150,000. You pay for the privilege though - the sting in the tail is a fee of £2,499. In a fix? Of course if you're paying a tiny amount of interest now then the idea of pushing it up voluntarily is not appealing in the short term, even if you think it will be better value in the long run. You are likely to pay a higher rate for your fixed deal than most other options. Louise Cumming of moneysupermarket points out that the average two-year tracker rate is currently 3.28% but fixing for the same period will cost 3.56%. It's worth remembering that with trackers around the 3% mark, the unavoidable rise in the Bank of England base rate will see those on tracker mortgages paying considerably more than fixed rate borrowers in the not-so-distant future. If you find a good fix you are likely to have the last laugh. Lenders base their fixed rates on the wholesale money markets rather than the Bank of England base rate and they say that a sharp rise in the former has dictated costs of the deals they can offer. Chelsea Building Society - currently the best fixed buy according to Moneyfacts.com - was forced to raise the rate on its new five-year fix only three days after it was launched, increasing the rate from 4.34% to 4.5%.
The deal is only available up to 65% LTV with a fee of £995. Or you can pay 4.99% on a five year fix with Clydesdale for LTV of up to 80%. Ray Boulger of mortgage broker John Charcol said, "With most borrowers (including around 80% of our clients) currently choosing a fixed rate mortgage, if interest rates continue to rise then the current recovery in the housing market, which is based primarily on much improved affordability as a result of the combination of lower house prices and lower interest rates, may well wobble. The message for borrowers wanting to take a fixed rate is clear; get in now or miss out on the current relatively low rates." First time headaches remain There was a big fuss this month when Lloyds unveiled its new 'Lend a Hand' mortgage aimed at first time buyers which has a rate of 4.39% fixed for three years. Perhaps they should have called it 'Lend me a ton of cash because my parents are rich' mortgage. Because you see the catch is that the Bank of Mum and Dad must slap down a sum equal to 20% of the property's value in a savings account with the bank. And it has be money they won't need for a while as it won't be accessible until the outstanding loan falls below 90% of the property value. The savings account will pay a fixed interest rate of 3.5% which isn't bad but the bank will take a legal charge on the savings account. There's also a fee of £995. And of course this won't be an option for shared ownership (which is how many first timers are buying now) unless you have very understanding parents. Things don't look any more promising since the launch of the government's 'MyChoiceHomeBuy' scheme, designed for first-time buyers, key workers and social tenants choosing any property on the open market. Under the part-government-funded scheme, up to half of the cost of a new home will be shared by a housing provider and applicants obtain their conventional mortgage from a range of qualifying lending institutions. But estate agent group Spicerhaart claims that house chains are collapsing because first-time buyers can't get their money through under the government's new shared ownership schemes designed to get the market moving again. Paul Smith, Spicerhaart's chief executive, said: “The initiative was meant to be a tonic to the housing market but instead of putting sufficient funds into the scheme to make a real difference, first-time buyers are being left in the lurch, with massive delays to their applications or complete refusal in some parts of the country where the money has already run out. Already we've seen a number of chains collapse as a result of the problems being experienced.” It seems that the stalemate is going to continue for a while longer. Useful links: |
| ||||||||||||||||