Home loan rates good, housing shortages bad

Outlook

Finally some good news for Generation Rent, at least those parts of it able to scrape together the cash for a deposit to buy a home.

Those who can raise up to 10 per cent of its value will find that the mortgages on offer are increasingly competitive, by contrast with other parts of the market where prices have risen in anticipation of the Bank of England hiking base rates (although recent events might delay that).

The data provider Moneyfacts has highlighted HSBC’s launch of a five-year fixed-rate deal at 3.49 per cent. The average for 90 per cent loans is a bit more – 3.97 per cent – but that’s still a full percentage point lower than where it was a year ago. Shorter- term fixes are similarly competitive.

The Government’s Help to Buy scheme – aimed at reviving the 95 per cent mortgage – seems to have had the effect of loosening things up further down the risk curve.

All to the good, one might think; the housing market needs first-time buyers to function effectively. The Bank of England’s figures, showing mortgage approvals rising to their highest level since February 2014 in July, suggests that it is starting to happen.

But there is, of course, a fly in the ointment – which is that demand for property is still outstripping its supply. We all know what happens in that situation.

The declining cost of loans aimed at first-time buyers is good news. Moneyfacts kindly gave me the numbers for a £200,000 loan over 25 years for me: at 3.97 per cent, a borrower would repay £12,628.32 annually – compared with £14,002 at the 4.98 per cent common a year ago.

Unfortunately, that saving will be more than offset by the rising cost of buying a home in the first place. If HSBC’s shiny new product is a victory for Generation Rent, it is a pyrrhic one.