A market survey carried out by financial resource website Moneyfacts, states that fixed rates are at the lowest levels since the product type’s inception in 1989. On average, it is now possible to secure a fixed rate at around 4 per cent, with previous averages over the past 5-10 years ranging between 4.5-5.5 per cent.
These reductions have partly come about due to the influence of the Funding for Lending scheme, introduced via a joint venture between the Government and the Bank of England. Market experts had cited the end of 2012 to be the point that the market would feel the benefit of the scheme, and while rates began to gradually reduce at that point, the pace at which lenders have made reductions during the first quarter of 2013 will give credence to the predictions.
Although this news has been welcomed by many mortgagors and the industry in tandem, lenders were consistently maligned for much of 2012 for not passing on the benefit of reductions to first time buyers and borrowers struggling to raise more than a 10-15 per cent deposit. However, since the turn of the year lenders have headed warnings of strong penalties if they are not looking to lend, and the knowledge that the cheap funding options made available by the Government will cease at the end of the year.
Currently fixed options are available below 2 per cent for a tie-in over two years, and there are some very appealing longer term deals with five year fixed options well below 3 per cent. While this news will bring cheer to many prospective borrowers, Sylvia Waycot, editor at Moneyfacts, noted that rate reductions do not necessarily mean lenders are also loosening criteria. She said: “This doesn’t mean it will be any easier to get a mortgage approved, you will still need to have a clean credit record, income sufficient to not only pay today’s mortgage rate but also potential future increases and of course the stickler for most, the deposit.
“But if you can satisfy the banks’ lending criteria and have a deposit or equity from a current house, then there are some amazing offers to be had.”
Echoing the positivity, Simon Butler of mortgage specialist brokers, Contractor Mortgages Made Easy, said that the change in the levels of fixed rates will change how many borrowers should approach the market: “For the past 3-4 years, the Bank of England base rate drop to 0.5 per cent has meant that the best value was in taking a tracker mortgage. However, if you now consider that a tracker or a two year fixed rate with Halifax can be attained at the same rate of 2.44 per cent, with no difference in fees, it makes sense to take the fixed option. It is highly unlikely that we will see a further drop in the base rate, and if anything, there are strong market warnings that the base rate will increase next year.”
The onset of such widespread reductions may suggest for many that the market for remortgaging should also be buoyant. The reality though is much to the contrary; the British Bankers Association released figures from the first month in 2013 that state the level of borrowers switching their deals has dropped to the lowest level for 15 years. The figures noted that 13,696 remortgages were approved during the month, the least approved since January 1998.
To those inside the industry, these findings should be headed, but not surprising. Simon Butler said: “The full impact of the Funding for Lending scheme has not yet penetrated the market at every level, so over the course of the year it is likely that activity in the remortgaging market will increase. Also, many borrowers may not feel the complete benefit of switching, due to sitting on a low standard variable or a low tracker deal that they currently have in place.
“If the much expected base rate shift occurs next year, I would expect activity to rapidly increase, as borrowers look to safeguard against rising rates. Securing a longer term fixed deal in the last quarter of the year may be a sensible choice, as it is likely that any raise in the base rate will trigger an increase in these options over-night, and we may see several increases once the Bank of England raise rates.”
Article by: Lucy Edmonds, Media Executive at Contractor Mortgages Made Easy
Media Contact: Raman Kaur, Public Relations Manager
Tel: 0844 44 88 80