October 15th, 2014
Mortgage lenders have recently ramped up efforts to meet annual lending targets by reducing interest rates below 2%, for the first time since the release of the Financial Conducts Authority’s Mortgage Market Review in April. Weekly reductions in interest rates have been introduced by the majority of lenders, in what appears to be the onset of a battle for market supremacy for the coming winter months.
The level of market activity reduced dramatically after the FCA rule changes were released and implemented by lenders during the Easter period. As lenders looked to ingrain the required changes into their underwriting processes, many chose to increase interest rates in attempts to reduce the level of new business received. For many borrowers, it became apparent that underwriting requirements had become stricter post-MMR.
Despite consistent warnings from the Bank of England that the base rate will increase in the near future, the BOE’s own quarterly credit survey predicts that lenders see the final three months of the year as a prime opportunity to continue making rate reductions. This is positive news for contractors looking for a new mortgage option, as the rise in competition means that the cost of borrowing will reduce over the remainder of 2014.
Natalie Larsen, a senior mortgage consultant for Contractor Mortgages Made Easy, stated: “For the past month many contractor friendly lenders from across the market have been reducing rates and fees in a bid to improve their business levels. Just this week, broker only lender Accord Mortgages has released a five year fixed mortgage from 2.59%, becoming one of the lowest available in the market.”
Larsen continued: “Mortgage lenders are clearly pushing to meet lending targets that were not met during the first half of the year, as during the past month fee reductions and incentives have re-appeared on the market. Halifax, often seen as a major supporter of the contractor sector, has re-introduced cash back elements to some of their products, and a refund of a valuation fee for others at the point of completion. Most eye catching for buyers is the introduction of a 2.99% two year fixed option for a 90% mortgage, with cashback on completion also included.
“Refinancing an existing mortgage has become more attractive because of these changes, and will likely produce considerable savings for anyone who secured a high mortgage rate post-credit crunch, but will very soon be in a positon with no early repayment penalties to restrict moving onto a better rate.”
The BOE credit survey noted that the availability of credit had reduced for the first time in the past eight quarters, a sign from the lenders viewpoint that attitudes to risk had changed amongst the mortgage lending community. A key signifier for this was evident when the Lloyds Group and Nationwide restricted lending options towards the Government’s Help to Buy scheme across the summer, in a bid to reduce the level of high loan to value borrowing on their own mortgage books.
The survey confirmed that, “Many lenders noted that operational issues associated with the implementation of the Mortgage Market Review had pushed down on credit availability over the summer.”
Article By: Simon Butler, Senior Mortgage Consultant at Contractor Mortgages Made Easy
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