Mortgage lending across the whole of the market has been steady since the turn of the year, but has not yet reached the levels expected by economists for the initial months of 2015. Estimates revealed by the Council of Mortgage Lenders suggest that lending is 4 per cent down on the figures seen for 2014 over the first four months of the year, with borrowing levels at £60.5bn compared to £63bn.
In attempts to meet lending targets for the year, it appears that mortgage lenders are cutting rates month on month to raise business levels. Moneyfacts.co.uk have provided figures based upon the comparison of swap rates, the measures mortgage lenders use to buy and set interest rates by, that show that the margins between the purchase of the rate and the final option presented to borrowers points to the fact that mortgage lenders are compromising to encourage custom.
The data shows that the margins between two and five year fixed rates, normally far apart when compared, are gradually creeping closer together. Moneyfacts data shows that the current average five year fixed rate is 3.45 per cent, and five-year swap rates stand at 2.06 per cent. That difference of 1.84 per cent between the rate and the swap has reduced from 2.38 per cent at the end of 2014, and was previously 2.09 per cent a year ago. This considerable drop is most notable when noting that two years ago the level was 2.96 per cent.
Two year swaps present a similar trend, as the margin between the average two year fixed option and the related swap rate sits at 2.09 per cent. Half a year ago, this sat at 2.46 per cent and the year before it stood at 2.59 per cent. Remarkably, the margin was 3.22 per cent two years ago, before interest rates began tumbling across the market.
As if to exemplify this attitude to slashing interest rate margins, Yorkshire Building Society released a market leading 1.07% two year fixed last week. This vast reduction demonstrates the trend, and market experts expect further interest rate reductions to follow.
Matthew Long, a senior mortgage consultant for Contractor Mortgages Made Easy, said: “Lenders have progressively reduced rates month on month since the start of the year, and as the election has now passed there does now appear to be a note of confidence returning to the markets. The suggestion from economists is that the Bank of England will stave off any interest rate increases over the remainder of 2015, so there is every chance that lenders will continue to reduce rates to hit their annual lending quotas."
Long did, however, note that cutting interest rates may not be the only method available to lenders to increase business levels. He said: "Criteria and the rules individual lenders follow to lend could still be adjusted to improve the levels of mortgage approvals. Post-mortgage market review, we still see some severe and rather baffling decisions from mortgage lenders when it comes to the justification of a agreeing a mortgage application.
"Attitudes to contractors and self-employed individuals are, in the main, still outmoded with the majority of lenders in the market. A change to the criteria used to become more flexible in terms of income assessment would go some way to improving the level of applications authorised in the market."
Article By: Simon Butler, Senior Mortgage Consultant at Contractor Mortgages Made Easy
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