Money Insider: Mortgage rates tumbling for those with 40% or more deposit


Interest payments on fixed-rate mortgages are tumbling to record levels for those fortunate enough to have a decent-sized stake to put down, while borrowers with smaller deposits are being ignored.

This week, NatWest became the third major lender in the last fortnight to launch a five-year, fixed mortgage with a rate below 3 per cent, but only if you have a 40 per cent deposit. There is a massive fee of £2,495 payable, but despite this, if you're looking to borrow £100,000-plus it offers good value and the chance to fix your repayments at an unprecedented low level until the summer of 2017.

The NatWest deal follows similar launches from HSBC at 2.99 per cent with a £1,499 fee and Santander at 2.99 per cent and a £1,495 fee, although the latter is only available to existing customers. On Wednesday, Nationwide rushed out an ever lower rate - 2.89 per cent - but only for four years. Again, you'll need a 40 per centr deposit and the arrangement fee is £900.

The reasons we're seeing these record low rates starting to appear are down to a combination of lower swap rates, a fall in Libor and the imminent introduction of the Government's new Funding for Lending Scheme.

This latest, multi-billion initiative from Whitehall is designed to offer low-cost funding to banks and building societies to be passed on to businesses and individual borrowers. It's good to see lenders offering previously unheard of longer-term, fixed-rate mortgages, but we need to see rate cuts for those with a smaller deposit.

The housing and mortgage markets have been in the doldrums for over four years and need a boost from the bottom rung upwards. The NewBuy scheme was introduced by the Government earlier this year, but is restricted to specific, new-build properties.

If there's going to be any upsurge in the number of mortgage transactions, lenders need to apportion some of the new Funding for Lending cash towards the first-time buyer market.

The difference in interest rates between the haves and have-nots as far as equity goes is massive, and although additional risk and capital requirements have to be factored in by lenders, there needs to be a greater focus on the first-time buyer segment of the market.

While a borrower with a 40 per cent stake borrowing £120,000 at 2.95 per cent (assuming an overall, 25-year term) will enjoy repayments of £566 per month, the monthly commitment for those with a smaller stake, and frequently a tighter budget, is far more onerous.

For example, with a 20 per cent deposit, the leading, five-year rate is 3.99 per cent (with £195 fee) from Monmouthshire Building Society. The same £120,000 will cost £633 per month and if your equity is limited to 10 per cent, even the most competitive rate of 4.99 per cent from First Direct will mean paying £701 per month.

Admittedly the cost differential is not quite so stark once you take into account the £2,495 fee on the NatWest mortgage which works out at just over £41 per month over the five-year deal, but the gap still needs to be narrowed.

It appears some lenders are competing for "low-risk" customers with headline rates, while leaving the wider market under-serviced.

Hopefully, as more providers make use of the Funding for Lending scheme we'll see better deals across the full spectrum of mortgages, otherwise there will be little positive impact on the mortgage market and a wasted opportunity to boost the wider economy.

Free mobile broadband initiative from Samba

The mobile broadband market is dominated by a few major players, however, increased competition and advances in technology have seen costs fall sharply in the last few years.

Earlier this month, a new entrant, Samba, launched a service offering free on-the-go broadband for laptops, netbooks and iPads. Sounds too good to be true? Well, you're not going to get something for nothing, there is a trade-off, but one that should go down well with cost-conscious mobile web users. You pay a one-off, £5 fee for a SIM or £25 for a Dongle and SIM, and earn credit for watching video advertisements.

Watching 2.5 minutes of adverts per day earns almost 520mb of data per month, which could save £8-£10 compared with a conventional, mobile broadband contract. Samba uses the mobile-data network from Three and works on all popular browsers with the exception of Internet Explorer.

You choose when and what to watch, and while this service won't suit everyone, with around 7m adults using broadband on-the-go, there's unlikely to be a shortage of new customers.