Home loans galore – but better be quick

Increased competition means plenty of mortgage bargains but the eurozone crisis may soon put a stop to that
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The Independent Online

Mortgage borrowers have never had it so good, at least since the credit crunch kicked in. The last year has seen a surge in the number of mortgage products available as lenders have loosened their criteria but, with the eurozone crisis deepening, home-loan experts are warning that the good deals on offer now could disappear in the blink of an eye in the new year.

Latest figures from financial information firm Moneyfacts for The Independent show that the number of mortgage deals on offer has jumped by more than 20 per cent in the past year, with the biggest surge coming since the summer. At present, UK banks and building societies offer 3,523 mortgage deals compared with just 3,038 in June and 2,869 at the start of the year. What's more, the price of the home loans on offer is much more competitive as 2011 turns to 2012 than a year ago.

"The good news is that there is a lot more competition out there. After the credit crunch, many lenders, although still on paper being open for business, chose to price themselves out of the market. Although there were lots of lenders out there, only a few were genuinely pricing their products to attract business," David Hollingworth, director of the brokers London & Country, said. "But in the recent past this has changed markedly. The arrears weren't as bad as first feared and money market rates have been low, which means that competition has hotted up, with more products available – and, crucially, at lower prices," Mr Hollingworth added.

For example, the best-buy five-year fixed-rate mortgage was 4.4 per cent back in late 2010, and now the Co-op is offering a fix over the same period for just 3.39 per cent. This spans a period when the Bank of England base rate has stayed at 0.5 per cent.

In particular, competition in high loan-to-value mortgages – usually the preserve of first-time buyers – has heated up. "The number of higher loan-to-value mortgages has noticeably increased, giving some hope borrowers with smaller deposits, particularly first-time buyers," Darren Cook, director at Moneyfacts, said.

The number of mortgages at a minimum 90 per cent loan-to-value has risen from 244 to 261 since the summer, 95 per cent ones from 31 to 37 and, most dramatically of all, 100 per cent home loans from just 8 to a more robust 17. A similar pattern has been seen in the buy-to-let sector too.

"These higher loans-to-value mortgages have been getting cheaper compared with mortgages with a far lower loan-to-value. This shows that lenders are more sanguine about the housing market, and less worried by the prospect of new borrowers slipping into negative equity," Ray Boulger, technical director of brokers John Charcol, said.

But there are already strong signals that the good news in the mortgage market isn't set to last. "After a 2011 of falling rates, we have just started to see an uptick in rates in recent weeks, particularly in tracker mortgages and some short-term – 2- or 3-year – fixed-rate deals," Mr Boulger said. The reason for this retrenchment seems to be, as in all things with the economy and the consumer, the eurozone crisis: "The money markets, which lenders rely on to fund their mortgage deals, have started to gum up again. The position is nowhere near as bad as it was post the collapse of Lehman Brothers in 2008. But the longer the eurozone prevaricates over sorting out its financial mess, the worse this is going to get, which should have an upward pressure on rates in 2012, despite the consensus that there will be no rise in the Bank of England base rate next year," Mr Boulger added. Just prior to Christmas and in a move to help oil the wheels of bank lending, the European Central Bank lent €489bn to more than 500 continental banks. The loans, which were made at a preferential interest rate, are widely seen as a bid to shore up bank balance sheets and enable them to loan to one another and stave off another credit crunch.

But not everyone agrees that the mortgage market is headed for a chillier 2012: "All of the major lenders that we deal with have indicated that they are looking to at least match their current lending levels into 2012, and the majority are looking to increase their lending levels and lend more across the board," Conor Murphy, managing director of Capricorn Financial, said.

Mr Murphy adds that lending criteria – still much stricter than before the credit crunch – may be relaxed further in 2012 due in part to new entrants into the market: "Obviously if lenders are looking to lend more, then the only way they can do this is by relaxing criteria, so I think that this trend should definitely continue.

"We are still awaiting some other major entrants to the market, which will now happen in 2012, and that increase in competition can only help. Virgin have bought Northern Rock and have some ambitious plans there, and the Co-op are in the process of purchasing lots of the old Lloyds branches.

"Tesco are still making noises about entering the standard mortgagemarket and lots of other new entrants are also mooted. All of these thingscan only be positives for the market in 2012 and, so long as the current eurozone crisis does not trigger another credit crunch, we should be a looking at a very good year," Mr Murphy said.

However, the dangers posed by the eurozone prompt many experts to suggest that now is the time to hunt out a good mortgage deal rather than sit on your hands and wait, whether you're thinking of moving home or looking to remortgage: "The eurozone is such a massive area of uncertainty that borrowers must ask themselves if they want to risk the whole thing blowing up and the good mortgage deals that are there at present disappearing in a flash.

"Although some shorter-term fixed-rate prices have risen, there are still some very good deals to be had with five-year fixed deals and lifetime tracker mortgages. Take HSBC, for instance. It is currently offering a lifetime tracker mortgage at 1.89 per cent above the Bank of England base rate that may be seen as extremely cheap as 2012 progresses, and don't forget that the experience of 2007 and 2008 showed that if problems develop in the credit markets, there tends to only be a short time lag until this feeds through to the interest rate that people are expected to pay on their mortgages."