There's a spring in the step for homebuyers
A buoyant housing market and a good supply of funds are driving down interest rates and boosting sales
Simon Read is Personal Finance Editor at The Independent. He edits the Saturday Your Money section and writes the Daily Money column and Wednesday’s Midweek Money section in i newspaper. He also writes for the news and business pages of the Independent and i newspaper and is a regular money commentator on TV station London Live. He has won numerous awards including Consumer Finance Journalist of the Year.
Friday 15 March 2013
House sales have reached their highest level in more than two and a half years, according to the Royal Institution of Chartered Surveyors (Rics) this week. The growth can be linked back to the Government's Funding for Lending scheme, which provides cheap money to banks to encourage them to give loans.
The picture is becoming so positive that Peter Bolton King, global residential director at Rics, said: "The housing market now appears to be picking up across most parts of the UK."
Earlier this month the Nationwide reported that average house prices climbed 0.2 per cent in February. A tiny increase, but noticeable as it marked the fifth successive month without a fall.
Meanwhile more buyers bought their first home in 2012 than at any time since 2007, according to the Council of Mortgage Lenders this week. The CML said there were 216,200 first-time buyers last year, climbing over 200,000 for the first time in five years.
This was more than 10 per cent up on 2011, when there were 193,000 first-time buyer loans.
With more people looking to buy, there are also more banks and building societies looking to lend, and better deals from mortgage firms are arriving every day.
That's also good news for people thinking of switching. In fact with the continuing low interest rates and wide range of deals around, now could prove to be a good time to look for a new fixed rate or low variable mortgage.
Are there better deals now?
Yes there are, say mortgage experts. They're partly driven by the positive impact of the Funding for Lending scheme, but also because lenders have started to become more competitive again.
"At the beginning of this year, we saw the impact of Funding for Lending really kick in, with a raft of sub-3 per cent mortgages coming on to the market," says Martyn Smith, head of mortgage products at the Legal & General Network. "What we are now seeing is competition driving down the amount of equity required to take advantage of these low-rate mortgages."
David Hollingworth, associate director at London & Country Mortgages, agrees. "The mortgage market has certainly been stimulated by the Funding for Lending scheme and as a result is now substantially more competitive, with lenders actively pricing to attract borrowers."
But he says that mortgage rates "have only been improving in the last six months or so and the renewed appetite of lenders has seen rates hit record lows".
A lot of people have effectively been trapped on fairly uncompetitive deals because falling property prices meant they couldn't get a better deal. That's beginning to change, according to Mark Harris, chief executive of the mortgage broker SPF Private Clients.
"Many homeowners have been trapped in their homes unable to remortgage because their loan-to-value has been too high to meet lenders' tighter criteria," he explains.
"Rising property prices is excellent news as it enables these borrowers to improve their equity position and increases their options – both in terms of product transfers from their existing lender or remortgage deals. This will be particularly welcome to those homeowners who have been stuck on an expensive standard variable rate, as it could enable them to reduce their monthly mortgage payments."
Should you switch loans?
There are some excellent remortgage deals available, according to Mr Harris. "Two-year fixes are cheaper than five-year deals but it may be worth paying a small premium and fixing for longer in order to get security for an extended period of time," he advises.
"While few economists predict interest rates will rise in the next couple of years, a rise in three to five years could be a real possibility, and a five-year fix would offer more protection."
However he warns borrowers not to fix for longer than they are absolutely happy with. "If you do you may have to pay an expensive early repayment charge to get out of the mortgage before the end of the fixed period," he says.
David Hollingworth says it is worth reviewing the mortgage market to see if there are savings to be had. "The level of equity in the property will still be key in determining the rates on offer, with the very lowest rates typically available to those with more than 40 per cent equity," he points out.
"In addition those homeowners who have been reducing the capital balance of their mortgage and now perhaps enjoyed growth in the value of their home could find that the options are much improved."
What are the best deals?
Finding the right deal will depend on what type of borrower you are, how much deposit you have, and whether you prefer a fixed rate or variable.
"The vast majority of borrowers are opting to fix their rate," reports David Hollingworth.
Five-year fixed rates can be found as low as 2.64 per cent from Yorkshire Building Society, as long as you have 40 per cent equity in your home. However, as that has a £1,475 fee, Norwich & Peterborough's similarly-targeted five-year deal at 2.74 per cent with a £295 fee plus a free valuation and legal work could prove better value.
For those with less equity in their home – at least 20 per cent – there are deals like West Bromwich Building Society's five-year fix for remortgages at 3.05 per cent with a £1,094 fee, free valuation and free legal work.
For first-time buyers, the mortgage broker FirstMortgage picks three two-year fixed rate deals. For those with 5 per cent deposit, Nationwide offers 4.44 per cent through the NewBuy New Home scheme. If you have a 10 per cent deposit you can get a 4.14 per cent deal through Accord, owned by the Yorkshire.
With a 15 per cent deposit you could get a 3.19 per cent deal through the Leek Building Society. These offers demonstrate the importance of saving as large a deposit as possible.
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