Will Nick Clegg clog up mortgage market?

Deputy PM's wish to tinker with £80bn lending scheme could dash home-buyers' hopes

Just as mortgage lenders are finally showing an appetite for cutting rates and easing credit restrictions, up pops Deputy Prime Minister Nick Clegg to potentially spoil the fun.

Mr Clegg has called for the Bank of England's £80bn Funding for Lending scheme (FLS), which has given the banks confidence to lend out to mortgage borrowers, to be skewed away from homeowners and towards business.

"Diverting the bulk of FLS credit towards small and medium enterprises would be rather a travesty for the mortgage market. It will force lenders to rely on traditional sources of mortgage funding, all painfully constrained at the moment. The net result will be fewer mortgages, less high loan-to-value (LTV) lending and higher rates," says Richard Sexton, the director of chartered surveyors e.surv.

So far the scheme has helped push down mortgage rates to record lows, and although house purchase lending has actually fallen for the past two months, without the FLS this could have been much worse. There are now more mortgage products than a year ago, and many of them are considerably cheaper.

Charlotte Nelson of financial comparison site Moneyfacts.co.uk says the average two-year fix at 95 per cent LTV which was 6.03 per cent in August 2012 has now fallen to 5.31 per cent, while at 60 per cent LTV the rates have fallen from 4.47 per cent to 3.59 per cent.

Borrowers may still be excluded if they have any question marks hanging over their credit or income profile. However, many lenders have been making the most of cheaper funds offered under the FLS on the proviso that they increase their loan books. As a result, there has finally been a noticeable increase in high LTV mortgages, a welcome relief to struggling first-time buyers that have been locked out of the market.

"After a slow start, FLS has finally got the banks lending again, and at competitive rates, initially at the lower LTV end of the market, but now at the higher end as they seek bigger margins," says Ashley Brown of independent mortgage broker Moneysprite.

"If this cheap source of money for lenders is taken away, there is every chance they'll abandon first timers and retreat back to the safer, bigger deposit borrowers. The mortgage industry will be sweating right now".

If improvements in the mortgage arena are going to slow back down, the crucial question for borrowers is whether to plump for a decent fixed rate while they can.

Two of the best buys today include two-year fixes from Chelsea Building Society, one at 1.74 per cent up to 60 per cent LTV and another at 3.69 per cent up to 90 per cent LTV, although both have a £1,695 arrangement fee. In the five-year market, Yorkshire BS charges 2.64 per cent up to 60 per cent LTV with a £1,345 fee, while the unusual fee-free fix from Harley Economic is 4.20 per cent for borrowers who can only manage a 10 per cent deposit.

"Borrowers shouldn't panic, but equally take nothing for granted. If you need to remortgage and qualify for an excellent fixed rate that suits your circumstances, then why not take it?" says Mark Harris, the chief executive of mortgage broker SPF Private Clients.

The big sell with fixed rate mortgages is peace of mind – you know what your monthly mortgage repayments will be and can rest assured that they won't suddenly soar if interest rates head north – but they still have dangers.

First, rates could move down even further leaving you stuck on an uncompetitive deal for years. Also, while headline interest rates may seem attractive, some lenders have simultaneously been increasing their fees which could mask how competitive these offers really are. The total cost of the mortgage is the most important calculation, and if a home loan comes with high upfront fees it may not be the best deal for you.

If it is security you're after, a longer fix of five years could make more sense, and you won't be shelling out for another hefty arrangement fee in two years. If you prefer flexibility, a penalty-free tracker deal lets you move on to a fix at a later date without fees. An offset mortgage (which sets your savings against your mortgage debt) is also worth looking into.

At the very least consider whether you can increase your equity by paying down some of your mortgage with your savings. This will improve your LTV and your chances of remortgaging to a decent deal.

Arts and Entertainment
Billie Piper as Brona in Penny Dreadful
tvReview: It’s business as usual in Victorian London. Let’s hope that changes as we get further into the new series spoiler alert
Life and Style
A nurse tends to a recovering patient on a general ward at The Queen Elizabeth Hospital in Birmingham
Fans take a selfie with Ed Miliband in Kempston, near Bedford, on Tuesday
election 2015
Arts and Entertainment
No Offence
tvReview: No Offence has characters who are larger than life and yet somehow completely true to life at the same time spoiler alert
Chuck Norris pictured in 1996
Finacial products from our partners
Property search
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Ashdown Group: Editor-in-chief - Financial Services - City, London

    £60000 - £70000 per annum + benefits : Ashdown Group: A highly successful, glo...

    Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

    £25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

    Guru Careers: Project Manager / Business Analyst

    £40-50k + Benefits.: Guru Careers: A Project Manager / Business Analyst is nee...

    SThree: Trainee Recruitment Consultant - Swiss Banking and Finance

    £20000 - £25000 per annum + Uncapped commission: SThree: Can you speak German,...

    Day In a Page

    General Election 2015: Ed Miliband's unlikely journey from hapless geek to heart-throb

    Miliband's unlikely journey from hapless geek to heart-throb

    He was meant to be Labour's biggest handicap - but has become almost an asset
    General Election 2015: A guide to the smaller parties, from the the National Health Action Party to the Church of the Militant Elvis Party

    On the margins

    From Militant Elvis to Women's Equality: a guide to the underdogs standing in the election
    Amr Darrag: Ex-Muslim Brotherhood minister in exile still believes Egypt's military regime can be replaced with 'moderate' Islamic rule

    'This is the battle of young Egypt for the future of our country'

    Ex-Muslim Brotherhood minister Amr Darrag still believes the opposition can rid Egypt of its military regime and replace it with 'moderate' Islamic rule, he tells Robert Fisk
    Why patients must rely less on doctors: Improving our own health is the 'blockbuster drug of the century'

    Why patients must rely less on doctors

    Improving our own health is the 'blockbuster drug of the century'
    Sarah Lucas is the perfect artist to represent Britain at the Venice Biennale

    Flesh in Venice

    Sarah Lucas has filled the British pavilion at the Venice Biennale with slinky cats and casts of her female friends' private parts. It makes you proud to be a woman, says Karen Wright
    11 best anti-ageing day creams

    11 best anti-ageing day creams

    Slow down the ageing process with one of these high-performance, hardworking anti-agers
    Juventus 2 Real Madrid 1: Five things we learnt, including Iker Casillas is past it and Carlos Tevez remains effective

    Juventus vs Real Madrid

    Five things we learnt from the Italian's Champions League first leg win over the Spanish giants
    Ashes 2015: Test series looks a lost cause for England... whoever takes over as ECB director of cricket

    Ashes series looks a lost cause for England...

    Whoever takes over as ECB director of cricket, says Stephen Brenkley
    Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

    Fishing is on Nigel Farage's mind

    Ukip leader casts a line to the disaffected
    Who is bombing whom in the Middle East? It's amazing they don't all hit each other

    Who is bombing whom in the Middle East?

    Robert Fisk untangles the countries and factions
    China's influence on fashion: At the top of the game both creatively and commercially

    China's influence on fashion

    At the top of the game both creatively and commercially
    Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

    The man known as GOD has a reputation for getting the job done

    Lord O'Donnell's three principles of rule
    Rainbow shades: It's all bright on the night

    Rainbow shades

    It's all bright on the night
    'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

    Bread from heaven

    Dutch survivors thank RAF for World War II drop that saved millions
    Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

    How 'the Axe' helped Labour

    UK will be 'run for the wealthy and powerful' if Tories retain power