Is the tide starting to turn in the mortgage market? You've probably already heard the outcry following the decision by Halifax, Clydesdale Bank, Yorkshire Bank and Bank of Ireland to increase the standard variable rate on their mortgages. It's too early to say if this is just the tip of the iceberg with other lenders soon to follow suit, but even though base rate remains at 0.5 per cent, where it has held fast for three years, it does seem that the ultra-low mortgage era that many have been enjoying may be coming to an end.
People have questioned the need for lenders to increase SVR while base rate remains at rock bottom. However, unless you have a base-rate tracker mortgage, it seems that the base rate has much less bearing on the cost of providing mortgage finance these days.
Some lenders have had to rely less on borrowing from the wholesale money markets with regulatory pressures seeing them turn more towards the retail savings market as a source of funds. While this change of focus may have proved successful to the extent that it has been possible to attract new customer savings balances, it seems that it has come at a price.
For example Clydesdale Bank and Yorkshire Bank launched a range of extremely competitive fixed-rate savings bonds in early November last year which stormed to the top of the best-buy charts across the board, from terms of one year at 3.6 per cent through to five years at 4.7 per cent. Having to pay a premium price to attract new money will have had an impact on the banks' margins and no doubt was a contributory factor in the decision to increase its SVR from May.
It's not just SVRs where we've seen mortgage rates increasing. In the past week alone; there have been price rises on a range of fixed and variable rate products for new customers from Chelsea Building Society, Woolwich, Leeds Building Society, Santander and First Direct. We're not talking about huge rate increases at this stage, with most being around 0.1 per cent or 0.2 per cent.
There are still some excellent deals to be had with a three-year fixed rate of 3.79 per cent and £495 fee available up to 85 per cent loan to value from Yorkshire Building Society or just 2.99 per cent if you've got a 25 per cent deposit.
For a five-year fixed rate you can get 4.19 per cent and no fee with the Co-operative Bank up to 85 per cent LTV or 3.49 per cent with £495 fee from Yorkshire Building Society at 75 per cent LTV.
It's certainly not all bad news and we're still seeing the odd new best buy hitting the shelves as we did this week with a new base rate tracker from Norwich and Peterborough Building Society. The new customer rate is 1.99 per cent above base rate for two years (current pay rate 2.49 per cent) with a £795 product fee and is available up to 75 per cent LTV.
If you are currently sitting on your lender's SVR or thinking about signing up for a new fixed or discounted deal, it may be worth checking out the deals available now and making your decision sooner rather than later.
NewBuy may bring old problems
Nationwide, NatWest and Woolwich this week launched 95 per cent LTV mortgage products as part of the government's NewBuy initiative aimed at helping first-time buyers.
The scheme plans to help up to 100,000 borrowers to buy a new-build property with just a 5 per cent deposit, with the government and housebuilders putting up security for the loan.
The idea is to enable more buyers to get on the housing ladder, support the flow of new housing development and boost the wider economy. there are potential pitfalls, the main one being that some economists are predicting lower house prices over the forthcoming 12 months.
New-build properties have a reputation for being overpriced and this with a fall in property prices could see buyers faced with negative equity and saddled with a mortgage on a property they are unable to sell.
This move looks more like an attempt to kick-start the construction industry than purely concern for first-time buyers, otherwise the government would have surely looked at refurbishing the thousands of homes standing empty rather than building more.
Andrew Hagger – Moneynet.co.uk