Borrowers benefit as the mortgage market heats up

House buyers can take their pick of more than 3,500 home loans, the most available since the financial crisis. By Julian Knight and Chiara Cavaglieri

The UK mortgage market is back with a bang rather than a whimper. Competition between mortgage lenders has been heating up for some time, but now, finally, borrowers can start picking and choosing the best deals. 

The number of mortgages available has topped 3,500 for the first time since the financial crisis. Financial information group Moneyfacts says there are now  25 per cent more mortgages available than a year ago, and most of these are at lower, more affordable rates with looser criteria.

Jonathan Harris of mortgage broker Anderson Harris says: “The mortgage market has definitely reopened for business, with a significant increase in the number of deals available to borrowers over the past year. It means much more choice at better rates – and this is true across the loan-to-value (LTV) curve.”

Recently, Halifax, Virgin Money, Metro Bank and Chelsea Building Society have all reduced rates or introduced new products to their mortgage ranges.

We have even seen the return of interest-only home loans with Clydesdale and Yorkshire Banks offering 0 per cent mortgages for the first three years on some deals.

This isn’t the only sign of recovery. Lenders advanced close to £17bn of mortgages in July, according to the Council of Mortgage Lenders (CML), up 30 per cent year-on-year from £13bn in July 2012. The last time we saw lending at this level was back in August 2008. Lending to first-time buyers (FTBs), who are often described as the lifeblood of the housing market, also hit its highest quarterly level since 2007.

Borrowers could be sitting pretty for another three years now that Bank of England Governor Mark Carney has confirmed that interest rates will remain at the historic low of 0.5 per cent until employment levels fall below 7 per cent. The Government has made considerable efforts to boost the housing market, above any other area of the economy. Although it didn’t do savers any favours, the Funding for Lending Scheme (FLS) – which gives lenders access to cheap funding – has triggered dramatic falls in the cost of fixed-rate mortgages.

If we look at average fixed rates today, borrowers can get a mortgage for five years at 3.84 per cent and for three years at 3.54 per cent (Moneyfacts). One year ago those rates were 4.73 per cent and 4.65 per cent  respectively, while in August 2007 borrowers were paying an average of 6.6 per cent and 6.54 per cent.

Fixed-rate mortgages could fall even further if lenders have to work a bit harder to convince borrowers to lock themselves in when interest rates are unlikely to rise until 2016.

Right now, five-year fixes are looking particularly strong – if you have a 35 per cent deposit you can fix for five years with Norwich & Peterborough Building Society at 2.59 per cent with £295 fee. This rises to 4.39 per cent from the Nottingham Building  Society (with £299 fee) if you have a 10 per cent deposit.

West Brom BS made waves when it launched the lowest rate ever offered on a two-year fixed-rate mortgage at just 1.48 per cent, undercutting the previous best buy from HSBC at 1.49 per cent, although both deals require a hefty, 40 per cent deposit and carry eye-watering arrangement fees (£2,494 with West Brom and £1,999 with HSBC).

A better option for many homeowners is the Chelsea BS two-year fix at 1.84 per cent, available to  borrowers with a 35 per cent deposit, with a much smaller fee of £745.

“Since the launch of the FLS the mortgage market has really heated up,” says Charlotte Nelson of Moneyfacts. “Providers need to be seen as actively lending so rates have been slashed to record lows across the board and the number of products has increased, with many lenders introducing highly varied ranges.”

Help to Buy, launched back in April, has also encouraged banks and building societies to increase high LTV lending. So far, 10,000 people have applied to use the scheme to buy with a deposit of just five per cent. The second stage of Help to Buy launches in January at which point mortgage guarantees will be available so that buyers can take out a loan with only a 5 per cent deposit with the next  15 per cent underwritten by the taxpayer. This part of the initiative goes much further, being available to FTBs and existing borrowers (as long as their household income isn’t above £150,000) buying both existing and newly built homes.

The question, however, is that if these initiatives have been propping up the market, what happens when these crutches are removed? It may be too early to celebrate a sustainable recovery until we see positive figures without government support.

The fact also remains that many people are still locked out of the market. While lending numbers are looking healthier, they are still running at a fraction of what they were at the height of the housing boom and experts say we must still prepare for a long, slow recovery.

It’s all very well that rates have fallen across the board, but the best deals are still aimed at the already well-serviced 60 per cent LTV market and borrowers with smaller deposits still can’t afford to buy in many areas of the country.

Equally concerning is the threat that part two of Help to Buy sparks a dramatic rise in sales volumes and house prices rise too quickly which could ring alarm bells that we are returning to the problems that caused the housing market to get out of control in the first place.

 “Supply must keep pace with the growing demand to prevent house prices being inevitably pushed up and the hope has to be that growing activity will help stimulate this. With detail on the Help to Buy guarantee scheme yet to be made clear, questions remain over how it will shape up, let alone the exit strategy,” says David Hollingworth of mortgage broker London & Country.

Property prices are already rising in many parts of the country, increasing by 3.1 per cent in the 12 months to June 2013, driven by an 8.1 per cent upward trend in London.

This may be welcomed by existing homeowners, but prices could easily race beyond aspiring homeowners who are already facing a squeeze on their incomes.

If we don’t see an increase in supply from house builders to keep prices in check we could find that this recovery is actually a bubble waiting to burst.

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

PROMOTED VIDEO
Life and Style
tech
News
The 67P/CG comet as seen from the Philae lander
scienceThe most important scientific breakthroughs of 2014
Arts and Entertainment
Ian McKellen as Gandalf in The Hobbit: The Battle Of The Five Armies
film
Arts and Entertainment
Sarah Koenig, creator of popular podcast Serial, which is to be broadcast by the BBC
tvReview: The secret to the programme's success is that it allows its audience to play detective
News
Ruby Wax has previously written about her mental health problems in her book Sane New World
people
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

    Ashdown Group: Marketing Services Manager - (communications, testing, DM)

    £32000 - £35000 per annum + benefits: Ashdown Group: Marketing Services Manage...

    Guru Careers: Finance Account Manager

    £Neg. (DOE) + Excellent Benefits: Guru Careers: A Finance Account Manager with...

    Ashdown Group: Java Developer - Hertfordshire - £47,000 + bonus + benefits

    £40000 - £470000 per annum + bonus: Ashdown Group: Java Developer / J2EE Devel...

    Ashdown Group: Direct Marketing Manager - B2C, Financial Services - Slough

    £45000 - £55000 per annum + Benefits: Ashdown Group: An exciting opportunity h...

    Day In a Page

    Homeless Veterans appeal: 'You look for someone who's an inspiration and try to be like them'

    Homeless Veterans appeal

    In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
    Could cannabis oil reverse the effects of cancer?

    Could cannabis oil reverse effects of cancer?

    As a film following six patients receiving the controversial treatment is released, Kate Hilpern uncovers a very slippery issue
    The Interview movie review: You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here

    The Interview movie review

    You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here
    Serial mania has propelled podcasts into the cultural mainstream

    How podcasts became mainstream

    People have consumed gripping armchair investigation Serial with a relish typically reserved for box-set binges
    Jesus Christ has become an unlikely pin-up for hipster marketing companies

    Jesus Christ has become an unlikely pin-up

    Kevin Lee Light, aka "Jesus", is the newest client of creative agency Mother while rival agency Anomaly has launched Sexy Jesus, depicting the Messiah in a series of Athena-style poses
    Rosetta space mission voted most important scientific breakthrough of 2014

    A memorable year for science – if not for mice

    The most important scientific breakthroughs of 2014
    Christmas cocktails to make you merry: From eggnog to Brown Betty and Rum Bumpo

    Christmas cocktails to make you merry

    Mulled wine is an essential seasonal treat. But now drinkers are rediscovering other traditional festive tipples. Angela Clutton raises a glass to Christmas cocktails
    5 best activity trackers

    Fitness technology: 5 best activity trackers

    Up the ante in your regimen and change the habits of a lifetime with this wearable tech
    Paul Scholes column: It's a little-known fact, but I have played one of the seven dwarves

    Paul Scholes column

    It's a little-known fact, but I have played one of the seven dwarves
    Fifa's travelling circus once again steals limelight from real stars

    Fifa's travelling circus once again steals limelight from real stars

    Club World Cup kicked into the long grass by the continued farce surrounding Blatter, Garcia, Russia and Qatar
    Frank Warren column: 2014 – boxing is back and winning new fans

    Frank Warren: Boxing is back and winning new fans

    2014 proves it's now one of sport's biggest hitters again
    Jeb Bush vs Hillary Clinton: The power dynamics of the two first families

    Jeb Bush vs Hillary Clinton

    Karen Tumulty explores the power dynamics of the two first families
    Stockholm is rivalling Silicon Valley with a hotbed of technology start-ups

    Stockholm is rivalling Silicon Valley

    The Swedish capital is home to two of the most popular video games in the world, as well as thousands of technology start-ups worth hundreds of millions of pounds – and it's all happened since 2009
    Did Japanese workers really get their symbols mixed up and display Santa on a crucifix?

    Crucified Santa: Urban myth refuses to die

    The story goes that Japanese store workers created a life-size effigy of a smiling "Father Kurisumasu" attached to a facsimile of Our Lord's final instrument of torture
    Jennifer Saunders and Kate Moss join David Walliams on set for TV adaptation of The Boy in the Dress

    The Boy in the Dress: On set with the stars

    Walliams' story about a boy who goes to school in a dress will be shown this Christmas