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.

News
Russell Brand was in typically combative form during his promotional interview with Newsnight's Evan Davis
peopleReports that Brand could stand for Mayor on an 'anti-politics' ticket
News
The clocks go forward an hour at 1am on Sunday 30 March
news
Arts and Entertainment
The Doctor finds himself in a forest version of London in Doctor Who episode 'In the Forest of the Night'
TVReview: Is the Doctor ever going stop frowning? Apparently not.
News
Voluminous silk drawers were worn by Queen Victoria
newsThe silk underwear is part of a growing trade in celebrity smalls
PROMOTED VIDEO
Sport
footballMatch report: Real fight back to ruin Argentinian's debut
News
Candidates with surnames that start with an A have an electoral advantage
newsVoters are biased towards names with letters near start of alphabet
Arts and Entertainment
Isis with Lord Grantham (Hugh Bonneville)
TV
Arts and Entertainment
Jay James
TVReview: Performances were stale and cheesier than a chunk of Blue Stilton left out for a month
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

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

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Compensation and Benefits Manager - Brentwood - Circa £60,000

    £60000 per annum: Ashdown Group: Compensation and Benefits Manager - Compensat...

    Data Analyst/Planning and Performance – Surrey – Up to £35k

    £30000 - £35000 Per Annum plus excellent benefits: Clearwater People Solutions...

    IT Systems Business Analyst - Watford - £28k + bonus + benefits

    £24000 - £28000 per annum + bonus & benefits: Ashdown Group: IT Business Syste...

    Markit EDM (CADIS) Developer

    £50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...

    Day In a Page

    Wilko Johnson, now the bad news: musician splits with manager after police investigate assault claims

    Wilko Johnson, now the bad news

    Former Dr Feelgood splits with manager after police investigate assault claims
    Mark Udall: The Democrat Senator with a fight on his hands ahead of the US midterm elections

    Mark Udall: The Democrat Senator with a fight on his hands

    The Senator for Colorado is for gay rights, for abortion rights – and in the Republicans’ sights as they threaten to take control of the Senate next month
    New discoveries show more contact between far-flung prehistoric humans than had been thought

    New discoveries show more contact between far-flung prehistoric humans than had been thought

    Evidence found of contact between Easter Islanders and South America
    Cerys Matthews reveals how her uncle taped 150 interviews for a biography of Dylan Thomas

    Cerys Matthews on Dylan Thomas

    The singer reveals how her uncle taped 150 interviews for a biography of the famous Welsh poet
    DIY is not fun and we've finally realised this as a nation

    Homebase closures: 'DIY is not fun'

    Homebase has announced the closure of one in four of its stores. Nick Harding, who never did know his awl from his elbow, is glad to see the back of DIY
    The Battle of the Five Armies: Air New Zealand releases new Hobbit-inspired in-flight video

    Air New Zealand's wizard in-flight video

    The airline has released a new Hobbit-inspired clip dubbed "The most epic safety video ever made"
    Pumpkin spice is the flavour of the month - but can you stomach the sweetness?

    Pumpkin spice is the flavour of the month

    The combination of cinnamon, clove, nutmeg (and no actual pumpkin), now flavours everything from lattes to cream cheese in the US
    11 best sonic skincare brushes

    11 best sonic skincare brushes

    Forget the flannel - take skincare to the next level by using your favourite cleanser with a sonic facial brush
    Paul Scholes column: I'm not worried about Manchester United's defence - Chelsea test can be the making of Phil Jones and Marcos Rojo

    Paul Scholes column

    I'm not worried about Manchester United's defence - Chelsea test can be the making of Jones and Rojo
    Frank Warren: Boxing has its problems but in all my time I've never seen a crooked fight

    Frank Warren: Boxing has its problems but in all my time I've never seen a crooked fight

    While other sports are stalked by corruption, we are an easy target for the critics
    Jamie Roberts exclusive interview: 'I'm a man of my word – I'll stay in Paris'

    Jamie Roberts: 'I'm a man of my word – I'll stay in Paris'

    Wales centre says he’s not coming home but is looking to establish himself at Racing Métro
    How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?

    A crime that reveals London's dark heart

    How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?