Whisper it quietly, but there is just a touch of boom-times about the UK mortgage market. Cash-rich lenders, flushed with £80bn of readies from the Bank of England's Funding for Lending scheme, are once again competing for borrowers' attention with eye-catching deals. It's not quite 2006 and 2007 all over again, but for a fair few credit-worthy borrowers it sort of feels that way.
Take Tesco's new deal, launched last week. A newcomer to the mortgage market, the supermarket giant offers a two-year, fixed-rate deal at 1.75 per cent. It comes with a hefty £1,300 arrangement fee, but, nevertheless, the rate is below inflation. Elsewhere, Norwich and Peterborough Building Society offers two- and five-year fixed-rate mortgage deals with ultra-low fees at just 2.24 per cent and 2.74 per cent respectively. "Banks are taking advantage of cheap money courtesy of the Government's Funding for Lending Scheme," said Ashley Brown, director of the independent mortgage broker Moneysprite. "That's why we're seeing record low rates."
Sylvia Waycot, of the financial information firm Moneyfacts, subscribes to the idea that some mortgage borrowers have never had it so good: "The Funding scheme has kick-started the mortgage market in a way previous quantitative easing has not. Today's market is all about enticing the less-risky borrower [who has] a large deposit. There's less chance of things going sour."
Less-risky borrowers are those who have been a salaried employee for, say, three years or more, have kept up all their loan and credit repayments during the past few years, have a hefty deposit – 25 per cent and above – or have a large amount of equity in their current home. These winners from the global financial crisis and recession are the ones best placed to scoop all-time low mortgage rates. And rates may go lower still. Mark Harris, chief executive of the mortgage broker SPF Private Clients, said: "Rates are likely to fall further still, but we also expect lenders to loosen criteria as they get fed up with competing with each other over pricing. Some of the smaller lenders may not have the capacity for big battles on the rate front and are likely to tweak criteria instead, which will be welcome." This could mean that lower rates for first-time buyers, who generally have smaller deposits, are on the way.
But does all this mean the UK is on the cusp of another house-price boom, fuelled by the lenders again? Probably not. First, there is still a huge debt hangover from the last boom, nearly £1.2 trillion of mortgage debt remains to be paid off and several hundred billion of loans and credit cards. All that has happened since the global financial crisis of 2007 and 2008 is that consumers have slowed their rate of new debt accumulation, rather than paying off substantial amounts. Any major rise in interest rates, for instance, would still have a potentially catastrophic impact on family finances in millions of British homes.
What's more, property transaction levels are still historically low. During the boom years new mortgages would top 100,000 a month. In figures for April, released on Friday, the Bank of England says that there were 53,710 new mortgages granted for house purchase. By far the fastest-growing sector is existing homeowners staying put and moving to one of the new ultra-low rate deals, with 30,313 remortgages taken out in April compared with 25,766 in January.
More generally, house prices are rising in London and the South-east owing to the better economy, greater mortgage availability and the torrent of property investment cash ploughed in from wealthy foreigners. Outside the capital, commuter towns and second-home destinations such as the South-west, the market is still in a state of torpor. Prices are edging lower in much of the North and West, with the backdrop of a struggling economy and rising unemployment.
The mortgage boom doesn't quite equal higher house prices – yet.