Mortgage wars mean good deals for consumers
Banks and building societies are fighting over market share by slashing their rates – but keep your eyes on the higher fees, warns Sarah Davidson
Sunday 03 July 2011
It isn't quite pistols at dawn but mortgage lenders have definitely started to scrap for business. After four years of banks slamming the door in borrowers' faces, the first signs of a fight for market share are emerging.
With the Bank of England looking less and less likely to raise the base rate this year, lenders across the board have got the scissors out and this week Moneyfacts claimed mortgage rates hit their lowest level in 23 years. The average two-year deal is now 4.32 per cent while the average two-year tracker deal priced at 3.37 per cent.
There are even lower rates on the market. If you can find a 25 per cent deposit Hinckley & Rugby building society is offering a two-year fix of just 2.99 per cent with a £990 fee.
David Hollingworth of mortgage brokers London & Country explains: "A drop in anticipation of base rate climbing imminently has led to money market rates falling, giving lenders the opportunity to sharpen their pencils and cut rates."
Last week alone, Northern Rock has slashed its rates by 0.17 per cent, Leeds Building Society by 0.65 per cent, GE Money by 0.9 per cent, and Yorkshire Building Society has ditched fees on some of its products. Halifax, Cheltenham & Gloucester, Santander and Woolwich from Barclays have also trimmed their rates.
Mr Hollingworth points out that lower headline rates can mask higher fees. "These are genuine cuts although it is always important to factor in the fees as some lenders will offer higher fee options in a bid to trim the rate," he says.
For example, Principality offers a two-year deal at 2.74 per cent with a £1,999 fee to 70 per cent loan to value while Woolwich offers a rate of 2.78 per cent up to 70 per cent LTV with a £999 fee.
Rob Killeen of mortgage brokers Capital Fortune says it was about time lenders passed the rock-bottom base rate on to customers. "Lender margins, the gap between what they pay the money markets and what they charge customers, have been at record levels," he says. "The truth is mortgages have been overpriced for some time."
For years good rates have been available only if you had a big whack of deposit, but recently banks have been dropping their rates at higher loan to values as well.
"Lending criteria and availability are inexorably yet slowly improving," explains Nigel Stockton of national mortgage brokers Countrywide. "This year 90 per cent loan to value deals have become much more commonly available, with Northern Rock, Halifax and Santander all offering good quality rates below 6 per cent for first-time buyers."
Chris Gardner, director at mortgage brokers Obligo, says this has only just begun to happen. Until recently, lenders were aggressively marketing at loan to values of 75 per cent and lower and didn't show much interest in smaller deposit loans," he explains. "However, these aggressive marketing tactics have resulted in a level of inertia at the lower loan to value, the knock-on effect being that lenders are now starting to show more interest at 80 and 90 per cent levels. We're hoping this price competition will spread to lenders relaxing their more stringent lending criteria. The reality is that, despite the great deals out there, some extremely viable mortgage applications are still being declined."
Fahim Antoniades, a mortgage adviser at Mortgage Centre IFA, says borrowers with a smaller deposit should think about looking outside the high street banks. "The higher end of the loan spectrum is dominated by smaller building societies that have appetite to lend up to 90 per cent loan to value," he explains. "Yorkshire Building Society, Furness, Barnsley, Leek United and the Post Office all offer good rates." He says lenders are also easing criteria to compete. "I have seen cases where applicants had been declined by Northern Rock only to be approved for a mortgage immediately after it eased its credit scoring policy on loans over £500,000."
So why the sudden push by lenders to grab more custom? They're worried because borrowers have been sitting tight on standard variable rates which continue to bump along beside base rate. The latest spate of cuts is in the hope of enticing borrowers to remortgage.
"The dilemma of whether to remortgage now or later is a tough one," says Jonathan Cornell of mortgage brokers First Action Finance. "On one hand there are now some excellent rates; on the other it doesn't look like we will see a base rate increase in 2011. If you suspect there is some reason why it will be harder for you to get a mortgage down the line, a job change for instance, it is probably a good idea to remortgage sooner rather than later. There is also the danger if you wait until the rate rises start that the rate you will secure for your remortgage will a lot higher than it is now."
There are alternatives to locking into a fixed rate now. Yorkshire Building Society has just joined ranks with Woolwich, Santander, Nationwide, Royal Bank of Scotland and Skipton which offer borrowers a "switch and fix" or "drop lock" mortgage.
This allows you to hedge your bets by starting out on a lower-priced tracker product, safe in the knowledge that you can switch quickly to a fixed rate at any time if rates start to rise. Both Woolwich and Santander say this type of deal has seen higher pick up in the last few weeks, as do brokers. "Switch and fix deals have certainly become more popular and it's easy to see why they are attractive to borrowers in the current uncertain interest rate environment," says Mr Gardner.
But there are pitfalls. "The problem with the switch and fix deal is that fixed rates will always go up faster than the base rate curve, and by the time the borrower wants to fix, the best rates will have long gone," he says. "When a borrower does decide to fix, the deal on the table won't necessarily be the best on the market, but by then they are tied to that lender and have little choice but to go with the rate on offer. And although the switch and fix deals typically don't have early redemption charges, there is likely to be a product fee, not just when the borrower takes out the loan but also when they move to the lender's fixed product."
Robert Sinclair, director of the mortgage adviser trade body, says the range of pricing structures on these deals makes taking advice a good idea. "There are a variety of pricing options attached to these and consumers should ensure they sit down with a mortgage broker who looks across the market to ensure they are being offered the best deal for them," he says.
The current switch and fix deals offer reasonably competitive rates. Royal Bank of Scotland has a 2.59 per cent variable rate available until 31 August 2013 up to 60 per cent LTV with a £999 fee. Santander offers a 2.19 per cent variable rate for two years on remortgages only up to 60 per cent LTV with a £1,495 fee. You can get a 3.99 per cent variable rate to 1 September 2013 for purchase only from Northern Rock up to 80 per cent LTV with a £995 fee. Woolwich from Barclays has a 2.49 per cent variable rate to 31 August 2013 up to 75 per cent LTV with a £999 fee.
Independent Partners: Get fee-free expert mortgage advice and find the right mortgage deal for you.
- 1 Jeremy Clarkson 'does not see a problem' with his racist language on Top Gear, says BBC
- 2 Richard Dawkins on babies with Down Syndrome: 'Abort it and try again – it would be immoral to bring it into the world'
- 3 London restaurant 34 creates champagne glass modelled on Kate Moss’ left breast
- 4 ALS ice bucket challenge co-founder Corey Griffin drowns, aged 27
- 5 James Foley beheading: Fox news presenter Megyn Kelly annoyed by Ferguson update during broadcast about murdered journalist
Richard Dawkins on babies with Down Syndrome: 'Abort it and try again – it would be immoral to bring it into the world'
Scottish independence: English people overwhelmingly want Scotland to stay in the UK
Isis threat: Cameron wants an alliance with Iran
Michael Brown shooting: Chaos erupts on the streets of Ferguson after autopsy shows teenager was shot six times – twice in the head
Bin bag full of cats' heads discovered near Manchester's Curry Mile
Disgusting, frustrating, but intriguing: how the country really feels about its politicians
iJobs Money & Business
Negotiable: Harrington Starr: Service Desk Analyst (Graduate, Helpdesk, Deskto...
Negotiable: Harrington Starr: Service Desk Analyst (Graduate, Helpdesk, Deskto...
£25000 - £35000 per annum: Harrington Starr: Junior Quant Analyst - C++, Boost...
£25000 - £35000 per annum: Harrington Starr: Service Desk Analyst- (Desktop Su...
Day In a Page
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony